THE COST OF LIVING IN
NORTHERN AUSTRALIA
As Townsville sinks under an extreme
flood, yet another government inquiry
ponders insurance affordability

February/March 2019

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Insurance News
takes a partner
Marketing company The Lead Agency
has taken up a significant shareholding in
Insurance News Pty Ltd.
Insurance
News
Publisher
and
Managing Director Terry McMullan says the
two companies will operate separately, “but
their expertise compliments our own and
provides opportunities to expand the range
and effectiveness of our services”.
The Lead Agency is a specialist B2B
marketing agency with considerable
experience in the insurance industry. Its
founder and Managing Director Andrew
Silcox was the marketing manager of major
brokerage OAMPS before it was acquired by
Wesfarmers.
Mr Silcox says Insurance News “has a
stellar reputation in the general insurance
industry. With its focus on quality journalism
and a passion for the industry, it is the clear
leader for industry insight and in-depth
commentary.
“With such a strong foundation, I believe
there is huge potential to grow with this everevolving industry.”
Mr McMullan has retained his majority
shareholding in Insurance News.
0 Insurance News welcomes new
shareholder, 4 February

A difficult year ahead
This year will see difficult conditions for many insurance buyers as the market continues
to harden and underwriters pull out of certain classes, broking leaders have warned.
In a quarterly market update, Honan Insurance Group says there will be “a continuation
of upward pricing pressures” throughout this year.
While brokers benefit from rate rises, Honan predicts a growing discrepancy between
low and high-risk business and insurers’ increasing “willingness to walk away” if they are
not happy with profitability.
“We are already witnessing global underwriting markets in Lloyd’s ceasing to write
certain classes of business such as professional indemnity and marine – and we expect this
to continue,” Chief Executive Australia and New Zealand Andrew Fluitsma said.
“Insurer risk selection and appetite will continue to drive underwriting behaviour
leading [to] a growing rating/pricing gulf between low hazard and less desirable
occupancies.
“Underwriting profitability remains the key performance metric in the medium term
as insurers continue to focus on good performing and risk managed businesses”.
Insurance Brokers Network of Australia Chairman Gary
Gribbin says the year will be “really lumpy”, with business
as usual in some areas but others seeing major rate
increases.
He highlights flammable cladding exposure and the
recycling industry as major areas of concern.
0 Welcome to 2019: it’s going to be
a ‘challenging’ year, 22 January

Fires hit NSW, Tasmania, NZ
Bushfires have destroyed homes in New
South Wales as they burn out of control
across northern parts of the state amid hot,
dry and windy conditions.
NSW is the latest hotspot in a burst of
bushfires in the region, with emergency
crews also working to contain blazes in
Tasmania and in New Zealand.
The NSW Rural Fire Service says a
blaze on the Tingha Plateau near Inverell
has burnt more than 5600 hectares. It
is spreading quickly and in multiple
directions.

Fireball: severe bushfires ravaged Tasmania
Credit AAP

Strengthening winds in the north of
the state also caused authorities to issue
an emergency warning for the Bruxner
Highway fire west of Tabulam, between
Casino and Tenterfield. The fire had earlier
destroyed five properties and has burnt

more than 2700 hectares.
Meanwhile, Tasmanian emergency
services continue to fight and patrol more
than 30 bushfires, even as snow has fallen
in parts of the state following a cool change.
Tasmania Fire Services says recent rain
has slowed the progression of several blazes
that could still flare up if hotter and windy
weather return.
And in New Zealand, firefighters were
working today to secure containment lines
and extinguish hotspots from a fire in the
Pigeon Valley in the Nelson area in the
northwest of the South Island. The current
fire perimeter is around 33km, covering
2400 hectares.

0 NSW bushfires destroy homes,
13 February

“Our big concern now is obviously the insurance industry. The thing we
don’t want to see at the end of this event is price-gouging in premiums.”
Townsville Mayor Jenny Hill wastes no time in joining other politicians in bagging
insurers who will spend hundreds of millions of dollars rebuilding her flooded city

6

insuranceNEWS

February/March 2019

NIBA appoints
new president
The
National
Insurance
Brokers
Association (NIBA) has appointed Vice
President Eric Harris as its new President,
replacing Tim Wedlock, who will remain on
the board.
Mr Harris, who has served on the board
of NIBA since June 2012, is Chief Operating
Officer of Business Operations at Aon.
Dianne Phelan, the Adelaide-based
Group Operations Manager at BJS Insurance
Group, replaces Mr Harris as Vice President.
The board and Chief Executive Dallas
Booth welcomed both appointments.
Mr Wedlock also served as NSW
Division Representative on the board, and
Rebecca Wilson has been appointed to fill
that position.
Both Ms Wilson and Mr Wedlock hail
from the Austbrokers network, as General
Manager Austbrokers ABS, and Managing
Director Austbrokers AEI respectively.
0 NIBA appoints new leadership team,
7 February

Hayne resets financial services
The Hayne royal commission has
stopped short of calling for a ban on
general insurance commissions, instead
recommending a further review.

It also recommends extending unfair
contracts terms provisions to insurance
contracts, which the Government has
pledged to carry out.

Commissioner Kenneth Hayne’s final
report was published today, along with the
Federal Government’s response.

The Government also agrees to remove
the exemption for the handling and
settlement of insurance claims from the
definition of a financial service, to enable
the Australian Securities and Investments
Commission (ASIC) to have jurisdiction
over claims.

Treasurer
Josh
Frydenberg
pledged to act on all 76 of the report’s
recommendations.
There had been fears the report would
call for all commissions to be banned –
a move that general insurance brokers
predicted could decimate the broking
sector.
But instead it recommends a review
of measures to improve the quality of
advice, including consideration of general
insurance commissions, to start in three
years and be completed by December 2022.
The Government says it “agrees to
review the remaining exemptions to the
ban on conflicted remuneration”.
The report also calls for empowerment
of the general insurance Code Governance
Committee to “impose sanctions” on
subscribers that breach the code.

Addressing each of the case studies
considered during last year’s hearings,
Commissioner Hayne refers Youi and
Allianz to ASIC for potential further
investigation and action.
For Youi, the matters relate to claims
handling and its duty of utmost good faith,
as examined in case studies following a
Broken Hill hailstorm and after Cyclone
Debbie.
Commissioner Hayne says the referrals
are for ASIC to consider “what action it can
and should take”.

0 Hayne calls for general insurance
commissions review, 4 February

Emmett takes over at AUB
Former Cover-More chief executive
Mike Emmett will become Chief Executive
of AUB Group from March 11, taking over
from Mark Searles.
Mr Emmett has formerly held roles with
QBE, EY, Accenture and IBM.

He was recruited from QBE by CoverMore in July 2014. The travel insurer
was sold to Zurich in April 2017, and
reported
last
insuranceNEWS.com.au
September that Mr Emmett would step
down in favour of a Zurich global executive.

Mr Searles announced in August that
he intended to step down with a view to
developing a non-executive director career.

0 AUB appoints Mike Emmett as its next
CEO, 24 January

Townsville flood: a roundup
Insurance losses from the Townsville
floods were estimated at more than $600
million “and rising by the hour” in midFebruary after the north Queensland city
was inundated by unprecedented rainfall.
The Bureau of Meteorology says the
total rainfall from consecutive days of
downpours in late January was the most in
Townsville since records began in 1888. The

flooding was made worse by the release of
water from the Ross River dam upstream
from the city.
Insurers received up to 16,000 claims,
the Insurance Council of Australia said as it
sought to assure affected communities the
industry will respond “swiftly, fairly and
compassionately” to the catastrophe.
Some 457 residential properties deemed
unlivable are on the insurers’ high priority
list. By mid-February the industry had
already provided $17.5 million in support,
emergency accommodation and repairs.
Insurers are aware from long experience
that at this stage of the post-disaster process
they are walking a tightrope of public
expectation, with Queensland Deputy
Premier Jackie Trad warning against using
so-called “loopholes” to deny claims.
The comment came as affected
policyholders, mainly businesses, realise

they are not covered for flood damage.
Hundreds of business owners did not take
out flood cover prior to the devastating
storms.
About 10% of the claims lodged are
from businesses. Industry sources told
insuranceNEWS.com.au that as many as
three-quarters of businesses in the city are
feared to have declined flood cover.
The reasons for such a large number of
decisions to opt-out of flood cover are not
yet clear, with some citing affordability and
others claiming their broker did not offer
flood cover to them.
Insurers are likely to resist pressure
to pay where the policy does not respond,
and affected businesses are being urged to
discuss the situation with their brokers.
While all policies generally include
storm cover, commercial and domestic
customers can decline flood cover.

insuranceNEWS

February/March 2019

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PUBLISHER
Welcome to a new “look and feel” for Insurance News magazine. Altering
an established and popular publication like this one is rarely a comfortable
experience, but our reasons for adopting a new layout are logical.
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insurance. With new challenges and opportunities

What’s next?
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share in Insurance News, is helping us expand
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ISSN 1837-4972

f you want to live in north Queensland,
the Northern Territory or northern
Western Australia, you should know
they’re all in a region where extreme
weather risks exist, which means the
chance of your property being damaged or
destroyed is higher than it is in the rest of
Australia.

As Townsville flounders after
a massive flood, a new report
on northern Australia insurance
continues an interminable saga
By Bernice Han and Terry McMullan

For insurers this volatile region is, at
best, marginally profitable. Which is why
insurance premiums in northern Australia
are more expensive that they are anywhere
else in Australia.
It’s a logic that brokers in northern
Australia have often repeated to their clients,
but it’s only when a cyclone sweeps through
the region or floodwaters like the February
Townsville event devastate a community
that the cost of insurance becomes less
important than the fact that it’s people’s only
path back to normality.
But cyclones and floods are isolated
incidents. Nobody can say when or where

10

insuranceNEWS

February/March 2019

“You have to understand that insurance is
expensive in that area for a good reason, the
premiums are calculated based on the risk.”
the next catastrophe may strike across the
vastness of northern Australia. But the risk
is always there.

frustrating business of sorting out claims
that will inevitably turn up many cases of
underinsurance and even non-insurance.

Such risk and unpredictability makes
the cost of insurance in the north a constant
bugbear to brokers like Stuart Brady of
Queensland’s Shielded Insurance Brokers.
Speaking to Insurance News from his base
north of Brisbane while his colleagues from
sister brokerage InsureNQ work long hours
helping clients affected by the Townsville
floods, he says higher risk “comes with the
territory” for northern Australians.

That in turn will again raise among
northern Australians the ugly issue of
insurance affordability.

“You have to understand that insurance
is expensive in that area for a good reason,”
he says. “The premiums are calculated based
on the risk.”
If that sounds easy enough to
understand, consider the twists and turns
of the Federal Government over the past six
years in dealing with such logic while the
people who live in the north – voters – pay
considerably more for their insurance than
people and businesses in “the south”.
The insurance industry has long insisted
that the only sensible way forward is
investment in buildings and infrastructure
that are capable of withstanding the extreme
conditions experienced in the north. The
overall expense would be considerable, but
the result would be less damage and lower
premiums.
In the meantime, the reality of the
present situation is illustrated all too
clearly in the once-in-a-century floods in
Townsville, which serve as a cruel reminder
of why the risk of extreme weather means
higher premiums for home, contents, strata
and commercial property policies.
Some of the costliest recent natural
disasters to hit Australia occurred in the
region: cyclones Debbie in 2017 and Yasi in
2011, for example.
The Townsville disaster is in its
early stages of recovery, with insurers
fully engaged in the complex and often

Solving this politically sensitive and
complex issue has proved a Herculean task.
Successive governments have come up short
despite the spending of millions of dollars
and man-hours invested in research.
Canberra’s latest crack at the problem –
the most recent in a long list of attempts to
document the issue without ever tackling the
expensive option of investing in solutions
– comes via the Australian Competition &
Consumer Commission (ACCC), which is
overseeing an ongoing three-year public
inquiry that began in 2017.
The latest report, released by the Federal
Government in December, lays out a list of 15
recommendations for immediate adoption.
These interim findings get it mostly right in
assessing why premiums are far higher in the
north, even if some of the recommendations
are contentious [see panel].
It says that over the past decade,
“insurers’ methodologies for pricing
insurance have become much more
sophisticated, and combined with access to
better data, we have seen a shift towards
more address-based risk assessment and
pricing”.
“In northern Australia, insurers have
also incurred some heavy losses due to
high claims and increasing costs. As a
result, insurance premiums are increasing,
especially for those in high-risk areas.”
Some of the recommendations, like a call
to abolish state stamp duties on premiums
– a move that would immediately improve
the situation – are hardly new. Others, like
banning broker commissions, extending
unfair contract terms to insurance policies
and making products more comparable

appear more attuned to the ACCC’s national
agenda than a solution to a regional problem.
“People are genuinely worried about
what will happen to their family, to their
community and to the development
prospects of northern Australia if insurance
prices continue to rise without relief,” the
ACCC says. “They fear devastation if disaster
hits and people are no longer insured.”
“The concerns we heard from
communities are not anecdotal or isolated.
Our analysis confirms that home, contents
and strata premiums are, on average,
considerably higher in northern Australia
than the rest of Australia and have increased
more in recent years” [see panel].
While that’s an obvious observation,
some of the ACCC’s recommendations are
solid and have found strong support from
the industry. Not surprisingly, the suggestion
to do away with stamp duties is one that
stands out.
Past government inquiries, independent
think-tanks and the industry have long
made the case for the abolition of stamp
duties on policies.
The Queensland Government is a good
and very relevant example. While Deputy
Premier Jackie Trad called on insurers
to treat Townsville flood victims with
compassion and said she was “gravely
concerned” that “hard-working family
businesses have done the right thing [and]
paid their premiums”, she wasn’t about to
get into the reasons why some people may
have elected not to add flood cover to their
policies – or bothered insuring at all.
Because insurance affordability
heavily affected by state stamp duties.

is

Early indications from Townsville
suggest that a significant number of
businesses and householders opted out of
taking up flood insurance, which is sure
to lead to the inevitable political handwringing and media portraying insurance
workers as heartless.

insuranceNEWS

February/March 2019

11

Under water: Townsville was hit
by record rainfall. Credit: AAP

Townsville floods is a good example. “Brokers
are working very hard for their clients at the
moment, gathering information and putting
the claims through. Many of them have suffered
their own damage, but they are still working
very long hours on behalf of their clients.”
Mr Brady of Shielded Insurance Brokers
agrees. “For clients, having brokers by their
side working through the claims process at
times like this is a huge relief.
National Insurance Brokers Association
(NIBA) Chief Executive Dallas Booth says
the issue of high stamp duties – which rise
in lockstep with premiums and are usually
calculated on top of the GST component – is
hardly a new issue. “There is very significant
stamp duty collection, particularly in
Queensland, and the ACCC report actually
quantifies that,” he told Insurance News.
“It’s interesting that when insurance
premiums had to increase about six years
ago because of the cost of claims… at that
very moment the Queensland Government
put up its insurance stamp duties.
“So the premiums went up, and of course
the stamp duties went up with them, and
the Queensland Government got a double
advantage.”
According to the ACCC, the stamp duty
on insurance products in Queensland rose
to 9% in 2013 from 7.5%. In WA and the
Northern Territory, a 10% rate applies.
Over the 11-year period to 2017/18,
overall tax collected from home, contents
and strata policies in northern Australia
boosted state and territory coffers from a
total $48 million a year to $157 million.
“As stamp duties are applied on the GSTinclusive amount of a premium, the effect of
these duties is magnified,” the ACCC report
says. “Taxes have a significantly higher
dollar impact on consumers in northern
Australia than in other parts of the country.”
If the industry fully supports the ACCC’s
recognition of the distorting effect of stamp
duties, the regulator’s call for a ban on broker
commissions has had the opposite impact.
The report says that as premiums have
risen, “we also observed that insurers’
commission costs in northern Australia have
more than doubled on a per policy basis
since 2007-08”.
It says commission rates of 15-20% are
common, and combined with incentive
payments can reach around 30% of the cost
of the premium. Remuneration structures

12

insuranceNEWS

February/March 2019

“inevitably give rise to conflicts of interest,
which consumers may not be fully aware
of. There is little or no direct relationship
between the size of the commission and the
work undertaken.”

“It can be a very daunting process for
someone to make a claim on their insurance,
and it’s tougher again when a disaster on
this scale happens. For us as brokers, we do
our very best work at claims time.

The report also notes that strata
managers were accused by focus groups
of “having no incentive to negotiate the
best premium, again due to conflicted
remuneration arrangements where they
receive a share of insurance brokers’
commissions”.

“We are definitely earning the
commissions in that respect. We definitely
work hard for our clients from start to finish
and I believe commissions are necessary for
us to operate.”

The
Australian
Securities
and
Investments Commission used the forum
of the Hayne royal commission to call for a
nationwide ban on broker commissions, but
senior industry sources have suggested to
Insurance News that the ACCC call for a ban
on commissions in one region of the country
is misplaced and even opportunistic.
With a limited number of insurers
operating in the region – albeit under a
multiplicity of brands – the work of brokers
in seeking out coverage at an affordable
price in a period when insurers are backing
away from higher-risk business is essential
to businesses.
“Moving to a fee-based system wouldn’t
solve anything,” one senior broker who
declined to be named for this article told
Insurance News. “Smaller businesses in
particular would be disadvantaged. The
answer isn’t in the direct market either,
when you look at the range of particular
risks businesses up there face.”
Local brokers say the ACCC reveals a
poor understanding of their role, because
while the regulator focuses on the front end
of the process – their payment – it ignores
the importance of the broker in assisting
clients when disasters strike, as they tend
to do with great regularity in northern
Australia. That’s when claims need to be
made, and the broker’s support and service
comes at no charge.
Mr Booth says the aftermath of the

There is also the fact that brokers are
charged with finding insurers with the best
coverages at the best price for their clients. In
a higher-risk region like northern Australia,
that’s not as easy as it is in the south.
Where risks are higher, insurers are
naturally more risk-averse. Some choose
not to do business in the region at all, while
those who are sticking with it are cautious
about the risks they will accept. The broker’s
relationships and negotiating skills with
insurers can mean the difference between
obtaining suitable coverage and limited
coverage.
The ACCC report’s analysis says that in
some parts of the north, “insurers are not
actively trying to win market share. Instead,
they are implementing strategies to manage
their exposure to customers they see as highrisk. For example, they may be increasing
their premiums so as to lose customers or no
longer selling or renewing policies.
“We found that insurers can regard
price leadership in a market [segment] as
exposing themselves to adverse selection
(that is, attracting higher-risk customers)
or otherwise indicating that they have
mispriced risks compared to a competitor.
“These unusual market dynamics soften
the competitive pressure on other insurers
in these areas.”
The report also notes the incidence
of heavy losses in northern Australia
earlier this decade “due to the impact of
significant natural disasters which resulted
in large claim amounts”. Insurers’ financial

The ACCC has called for quick
adoption of 15 suggestions
it believes will bring premium
relief to property owners in
northern Australia. They are:
1. Abolish stamp duty on home, contents and strata
insurance products
2. Re-base stamp duty; use stamp duty revenue for
affordability and mitigation
3. Insurers to report their brands and where they are
writing new business
4. Standardise definitions of prescribed events
5. Review and mandate standard cover
6. Unfair contract terms should apply to insurance
7. A link to MoneySmart should be on new quotes and
renewal notices
8. Better understand information that falls within
‘general advice’
9. Disclose costs that count towards ‘sum insured’
10. Disclose the premium, sum insured and excess on
a renewal notice
11. Extend the ban on conflicted remuneration to
insurance brokers
12. Better information for consumers lodging a claim
13. ASIC approval for the General Insurance Code of
Practice
14. Public mitigation works and expected premium
reductions
15. Building code changes to better protect interiors
and contents

performance in northern Australia has significantly
improved since then “but remains poor”.
“While some insurers have been profitable, their
margins have been lower than in the rest of Australia.
Other insurers have continued to operate at a loss over
recent years, albeit a smaller one.
“While premium revenue is proportionally much
higher in northern Australia, so too are insurers’ costs.
Costs have risen over the last decade at a greater rate
than costs in the rest of Australia. Claims are more
frequent, and on average larger, in northern Australia
(particularly for strata insurance).
“This has also impacted on the cost of reinsurance,
which is a significant cost component for insurers.”
Would bans on commissions and other “solutions”
such as comparison websites solve the insurance
affordability and availability problem that continues
to dog northern Australia? Probably not, say insurers,
because the only real solution is to spend money on
serious mitigation strategies, better land-use planning
and improvements to the building code.
Until that happens – and no one should hold
their breath – experts say the industry should focus
on pushing the mitigation option and explaining to
the affected communities the myriad reasons why
insurance in the north costs more than it does in
the south. There is an obvious role for brokers in
communicating that message.
Cairns broker John Devaney believes the industry
needs to reassess its communications strategy when it
comes to raising public awareness of brokers’ role.
“We’re great at talking to ourselves but with the
outside we’re not so great, and that’s where we need
to invest in that dialogue at a greater level,” he told
Insurance News.
“We need that united voice saying who and what we
are, and we don’t want to leave that too late.” 0

8. Requesting personal information held by
insurers
9. Strata managers to be remunerated by
body corporate only
10. Clear disclosure of products considered
and remuneration
11. Giving consumers more control over how
claims are settled
12. Clearly stated mitigation discounts
13. Information on mitigation works that could
reduce premiums.
The ACCC report says home and contents
premiums in northern Australia rose 130%

in real terms for property policies between
2007/08 and the last financial year.
For properties in the south, premiums
went up about 50% over the same period.
Combined home and contents policies are
most expensive in northern Western Australia,
with a policy costing an average $3500 in
annual premiums.
In second place is North Queensland on
$2400, followed by the Northern Territory
where annual premiums are about $2200.
Premiums in the rest of the country are
significantly lower, with totals around $1300
prevailing in the south of the country.

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IAGCO0033GRC

C mmissi ns
in the firing line
Brokers have three years to justify why their
remuneration arrangements should continue
By Wendy Pugh

C

ommissioner Kenneth Hayne has stated he doesn’t
like financial services carve-outs or exemptions
and he doesn’t particularly like commissions
either – throwing down the gauntlet for general
insurance brokers who benefit on both counts.
The final report of his Royal Commission into
Misconduct in the Banking, Superannuation and
Financial Services Industry, released with much fanfare
in February, has left the broker remuneration model
unscathed for the time being. But brokers remain in
the firing line, with regulators lining up against them,
confirming fears that they would be caught up in the
inquiry’s net.
The report recommends a review of the broker
exemption from the ban on conflicted remuneration as
part of a wider financial advice review. In three years’
time. “The review should preferably be completed by
30 June 2022, but no later than 31 December 2022.”
Brokers say no evidence was presented to show
problems with general insurance broking commissions,
and Commissioner Hayne had no grounds to take
immediate action. From that perspective, they have
welcomed the more measured approach of a delayed
further inquiry.
“We have three years to work out exactly where

16

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February/March 2019

we want to be in terms of broker remuneration and to
prepare a very strong case for that review,” National
Insurance Brokers Association (NIBA) Chief Executive
Dallas Booth says in a message to members. “So we have
got good news in the short term, but we have some very
important work to do over the next couple of years.”
The final report clearly targets commissions in
other sectors, suggesting they compromise customer
service and that, where possible, such conflicts should
be eliminated rather than managed.
“Any intermediary who seeks to ‘stand in more
than one canoe’ cannot,” Commissioner Hayne says
in his report. “Duty to client and self-interest pull in
opposite directions.”
The report recommends a ban on mortgage broker
commissions, seeks to end grandfathered arrangements
as soon as possible and suggests the proposed review
should consider whether declining life commissions
should “ultimately be reduced to zero”.
The review, to be conducted in consultation with
the Australian Securities and Investments Commission
(ASIC), will look at whether the conflicted remuneration
ban exemption for general insurance products,
consumer credit insurance products and non-monetary
benefits remains justified.

Eye on commissions:
Kenneth Hayne

The carve-out was achieved as part of the 2012
Future of Financial Advice (FOFA) reforms, doubly
placing them in Commissioner Hayne’s sights as he
sought ways to simplify financial services laws so there
is less scope for misconduct.

past and say they are well placed to do so again.

“It is time to start reducing the number and the
area of operation of special rules, exceptions and carveouts,” he says.

He says commission levels are roughly the same
between various insurers and there is therefore no
incentive to switch from one provider to another on
the basis of earnings. He also rejects ideas that there
is any manipulation of deductibles and premiums to
maximise commissions.

“Reducing their number and their area of operation
is itself a large step towards simplification. Not only
that, it leaves less room for ‘gaming’ the system by
forcing events or transactions into exception boxes not
intended to contain them.”
Scrutiny of general insurance commissions
emerged in a policy questions document after the royal
commission’s insurance round of hearings, despite the
issue not being canvassed to that point of the inquiry.
In response, ASIC backed an end to the exemption,
while the Australian Competition and Consumer
Commission (ACCC) has separately added its weight
to the issue by calling for an immediate ban last year
as part of its ongoing inquiry into northern Australian
insurance.
Brokers have argued their case successfully in the

“For FOFA we clearly articulated how we operated
and independent people looked at that and said it is not
conflicted,” Steadfast Chief Executive Robert Kelly told
Insurance News.

“The industry has to show to the ACCC and it has to
show to ASIC how we operate and how there is a lack of
conflict,” he said.
Brokers’ remuneration involves both fees and
commissions, with the latter often accounting for
some two-thirds of the total. The breakdown must be
clearly presented for retail consumer products such
as home and motor. For commercial clients only the
fee is separately stated, while further information on
commissions must be disclosed if requested.
The remuneration split covers both the cost of
providing advice and arranging the insurance as well
as the often-overlooked role of brokers in assisting

insuranceNEWS

February/March 2019

17

clients when a claim needs to be made.
Insurance Brokers Network of Australia Chairman
Gary Gribbin says brokers “are providing products
that are high quality, much better products than the
direct market, and when a claim occurs brokers are
demonstrating their value in abundance – and it is that
which is the single biggest service”.
NIBA’s Mr Booth notes that the commission
structure also spreads the cost of administering the
process across the client base, assisting those with more
time-consuming issues, just as insurance spreads the
claims of the few against the premiums of the many.
A completely upfront fee raises the risk that
businesses at the smaller end of the market are likely
to baulk at the cost, disadvantaging clients that would
benefit from advice and hitting brokers that provide the
service.
JP
Morgan
Insurance
Analyst
Siddharth
Parameswaran says the biggest impact could come at
annual renewals when a client may be more inclined
to question a significant fee if they are not receiving the
same level of service as when cover was first provided.
Brokers make a distinction between commissions
paid on a policy basis and the more widely criticised
volume-based commissions, where a brokerage
receives an extra amount for a placing a certain level of
business with an insurer. Additional services provided
for the insurer may be linked to the payments.
“If an insurer comes to you and says, if you give
us x amount of premium we will pay you the normal
commission plus something more, then that is
conflicted,” Mr Kelly says. “In that situation you are not
doing the right thing by your client.
“Steadfast has never done any of that.”

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February/March 2019

Commissions vary widely according to the various
classes, and Mr Kelly says they average out at about
20%.
Brokers fear they have been swept up in concerns
raised about add-on insurance, with the royal
commission highlighting commissions of around 70%
paid to motor vehicle dealers for sometimes-worthless
products. They are also different from life advisers who
are seeing high upfront commissions scaling down
from an 80% cap introduced last year.
General insurance brokers mainly provide cover
for businesses ranging from SMEs to large corporations
and have less involvement in the consumer end of the
market that was examined in the royal commission’s
insurance round.
Risk Advisory Services MD Tony Cope, whose
brokerage operates solely on fees charged to clients,
says the royal commission may not have heard evidence
about brokers, but asserts that if it had expanded its
focus it would have found that conflicted remuneration
arrangements are widespread.
“We have conducted more than 500 independent
insurance reviews since 2007 and uncovered conflicted
insurance broking remuneration arrangements in
more than 50% of these engagements,” he says in a
LinkedIn blog.
“After watching [Counsel Assisting] Rowena Orr
and Michael Hodge dismantle many financial services
executives at the royal commission, NIBA should be
very grateful that the conflicted insurance broking
remuneration arrangements were not their core focus.”
Mr Cope told Insurance News that commission
payments become less comparable between insurers as
the cover becomes more complex.
“The skill of the broker is to design a product that

Hayne’s action plan
The royal commission made 76
recommendations in the final report,
including the following key measures
affecting general insurance.
Broker commissions: A review
of measures to improve financial
advice will also decide if conflicted
remuneration ban exemptions are
still justified for general insurance
products, credit insurance products
and non-monetary benefits. The
review should start in three years
and ideally be completed by June 30
2022, and no later than December 31
that year.
Unfair contract terms: These
should be extended to insurance
and the Australian Securities and
Investments Commission (ASIC) Act
amended to define “what is being
insured” as the main subject matter
of a contract. The duty of utmost
good faith in the Insurance Contracts
Act should operate independently.
Claims handling exemption:
The handling and settlement of
claims should be included in the
financial service definition, meaning
Corporations Act obligations to
provide services efficiently, honestly
and fairly would apply and giving
ASIC greater oversight.
Disclosure duty: The Insurance
Contracts Act should be amended
to replace the consumer duty
of disclosure with a duty to take
“reasonable care” not to make a
misrepresentation.
Commissioner
Hayne says insurers know better
than consumers what is considered
relevant.
Code of Practice: The Insurance
Council of Australia (ICA) should
empower the Code Governance
Committee to impose sanctions for a
breach. Commissioner Hayne rejects
the idea of sanctions only if an insurer
fails to correct a breach. Industry
codes should make some areas
enforceable by law. ICA should act
by June 30 2021 to have provisions
that govern the terms of a contract
with policyholders designated as
enforceable code provisions.
Co-operation
with
the
Australian Financial Complaints
Authority: Companies should take
reasonable steps to co-operate with
the authority, which has replaced
the Financial Ombudsman Service,
and make available all relevant
documents and records relating to

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February/March 2019

disputes. Commissioner Hayne says
there is “little benefit in mandating
the existence of systems if there is
no obligation to comply with those
systems”.
Add-on insurance: A Treasuryled working group should develop an
industry-wide deferred sales model
for add-on products and this should
be introduced as soon as possible.
ASIC should impose a cap on
commissions paid to vehicle dealers.
BEAR: The Banking Executive
Accountability Regime should be
extended to all Australian Prudential
Regulation
Authority-regulated
insurers.
Commissioner
Hayne
suggests it could first be extended to
superannuation and to insurers “after
a further interval”.
No hawking: Hawking of
insurance products should be
prohibited. This recommendation
was sparked by phone sales of
life cover to consumers who did
not understand what they were
purchasing.
Changing
culture
and
governance: Financial services
entities should, as often as
reasonably possible, take steps to
assess culture and governance,
identify any problems, deal with them
and determine whether changes
have been effective.
ASIC
enforcement:
ASIC
should take as its starting point
whether a court should determine
breach consequences. Infringement
notices should mainly be used for
administrative failings, and would
rarely be an appropriate enforcement
tool
for
large
corporations.
Deterrence should be taken into
account in deciding whether to
accept an enforceable undertaking.
A regulator for the regulators:
A new oversight authority would
monitor ASIC and the Australian
Prudential Regulation Authority.
It would comprise three part-time
members, be staffed by a permanent
secretariat and report to relevant
ministers biennially.
Individual
registration:
Individual financial advisers should
be registered with a new disciplinary
body that would complement ASIC’s
role. The National Insurance Brokers
Association is seeking clarification
as to whether the proposal extends
to insurance brokers.

works best to match the risk of the client, and those
products can be completely different and that will mean
there are different commission rates,” he says.
Mr Cope says it is time for the broking sector to
follow the example of professions like accountancy and
law in the way it is remunerated.
“If the insurance broking industry is going to be a
profession it needs to be able to explain the value that it
adds and the amount that it charges for the generation
of that value,” he says.
Commissioner Hayne’s dislike of carve-outs and
exemptions has also had implications in other areas of
general insurance.
The report recommends claims handling should
fall within the definition of a financial service, making
it subject to Corporations Act obligations to provide
services efficiently, honestly and fairly.
Unfair contract terms would be extended to
insurance, with Commissioner Hayne favouring a
narrowly defined “main subject matter” for contracts.
This approach is preferred by consumer groups, as
more terms would be left open to challenge.
“The purpose of extending the unfair contract terms
regime to insurance contracts would be undermined
if the broader definition endorsed by industry were
adopted,” he says.
The final report recommends that the Insurance
Council of Australia (ICA) strengthen sanction
provisions in the Code of Practice and proposes that
industry codes in general should make some provisions
enforceable by law – a significant step from the way
self-regulatory codes were originally envisaged.
The Government and Opposition have committed to
implanting recommendations in the final report as soon
as possible, including measures aimed at improving the
performance of the regulators in cracking down on
misconduct.
Many of the proposals are broadly supported by the
industry, with some reflecting work already in progress,
but details of proposals are still being analysed and
considered.
“Repairing public confidence in general insurance
is essential if we are to continue to provide effective and
efficient risk-based products to households, businesses,
governments and the broader community,” ICA Chief
Executive Rob Whelan says in a response to the royal
commission’s final report.
But brokers do have time to justify the continuation
of their commission arrangements and to prepare the
case for retaining a hard-won exclusion to the conflicted
remuneration ban.
They have a solid case to put forward, but the
opposition from consumer groups as well as ASIC and
the ACCC mean it’s shaping up to be a very tough battle. 0

AD

Bright future: Tim Plant
believes Zurich is heading
in the right direction

Maintaining momentum
Zurich is back on track, with a new Chief Executive
who’s determined to build on recent gains
By John Deex

I

t’s no secret that Zurich’s local business has had
to work through some challenging times in recent
years.

But now it’s out the other side of that tricky period,
equipped with a renewed focus and clear strategy – and
new leader in experienced executive Tim Plant.
Mr Plant (formerly of QBE and icare) was selected to
run the general insurance business following last year’s
departure of Raj Nanra, and sees a bright future full of
opportunity.
Zurich’s international reputation, the hardening
market and the ability to grow were all factors in
attracting him to the role – as was the insurer’s almost
singular focus on the commercial intermediated
market.
“I saw a great opportunity,” he tells Insurance News.
“The business had gone through some challenges in the

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February/March 2019

past few years, but I think the direction we are on, the
positioning of the business has been very positive.
“A lot of my focus has been on maintaining the
strong momentum that our really great team has been
able to develop.
“It was a great time to come in, the timing of the
market is terrific for our business.”
Zurich remains a major player in the broker market
across Australia and New Zealand, writing more than
$1 billion in premium and employing more than 500
staff.
“We are really proud of our customer proposition,”
Mr Plant says. “We provide coverage for more than
half of the ASX 300, we also cover about one-third of
Australia’s top 500 private companies, and we have a
really good SME footprint, with more than 100,000
customers.

“There is an enormous amount of goodwill for
Zurich in the marketplace from our broker partners
and there is quite a Zurich alumni across the market in
various places.”

“It is so important that we have a deep
understanding of what each of them are doing and how
we can continue to build really strong relationships and
work with them to build strong customer solutions.

Mr Plant, who took the reins halfway through last
year, did not rush to put his stamp on the business.

“In terms of customer experience, we have been
able to drive significant improvement in the feedback
responses we are getting. The likelihood of a customer
recommending us has increased more than 185% in our
claims area.

Instead, he recognised good work already being
done, and spent time holding in-depth discussions with
staff and broker partners.
After gathering crucial feedback, he developed five
key strategic themes: keeping decisions as close to the
customer as possible; a deep understanding of broker
partners; investing heavily in customer experience;
consistency and clarity; and instilling pride and
confidence.
“Our market is healthy, competitive and mature
and there is no shortage of insurance options. We
are making sure we are in a position where we can
differentiate our offering from the broader market.
“The key area of focus for us is to build on the
momentum our team has delivered over the past
couple of years.
“Part of that success has been keeping our decisions
as close to the customers and intermediaries as possible,
and we have reinforced that with some announcements
on our executive structure.
“We are continuing to drive a deep understanding
of our broker partners. The market is seeing a fair bit
of disruption, a lot of new technology coming through,
and each of our broker partners is making slightly
different strategic choices.

“We are also investing in technology and processes,
and in value-added services around risk engineering
and areas that really support our relationships and
make us more than purely a provider of capacity.”
Mr Plant says feedback from broker partners
indicates consistency and clarity are crucial.
“A lot of the feedback was quite consistent around
ensuring we deliver a consistent level of service and really
have clarity around our risk appetite and delivering on
expectations.
“We don’t want to be going down the path of exploring
opportunities that clearly aren’t within our appetite.”
He also believes that instilling pride, confidence, focus
and purpose in his staff can only lead to better outcomes.
“I do think we have a lot to be proud of and it’s about
making sure our people have the confidence to go out
and represent us appropriately, and deliver high-quality
solutions.”
Mr Plant believes Zurich is strong across the
corporate, mid-market and SME sectors, and sees growth
opportunities in all three.

insuranceNEWS

February/March 2019

23

“Being part of a global group, we have enormous
capabilities to service multinational customers. In the
mid-market, we have achieved really solid penetration
across a number of products.
“And we still see great opportunities in the SME space.
We are continuing to invest in that area, in particular in
customer experiences across claims, underwriting and
risk solutions. We want to grow our position across those
three key segments, but it is really important that we
grow sustainably.
“We want to take the opportunities for growth,
but making sure we do it with appropriate levels of
underwriting profitability.”
While Zurich’s focus is on the commercial
intermediated sector, it is also helping brokers gain
market share in personal lines through its support of
insurtech Blue Zebra, which it underwrites.
Launched last year by former QBE executives
Colin Fagen and Blair Nicholls, Blue Zebra uses a smart
technology platform to help brokers compete with direct
players.
“They are doing really well and we are pleased with
the penetration they have developed already,” Mr Plant
says. “They have more than 250 brokers supporting
them across Australia, and they are bringing some
unique IP to the market.
“It is a very valuable proposition for brokers as well.
A lot of the brokers we talk to still see personal lines as
an important way of managing the overall relationships

Backing brokers: Mr Plant
believes intermediaries
always add value

Seeds of a successful career
Tim Plant has spent 25 years in
insurance – but he started his professional
life on a different track.
“I came in from the agri-side,” he
tells Insurance News. “My first job out of
university was teaching in an agricultural
college. Then an opportunity came up
at a company called Australian Eagle in
Melbourne as their national agronomist, so
I got into insurance from there. The past 25
years has seen some great experiences.”
Mr Plant has worked at home and
abroad, in insurance and reinsurance.
“I was lucky enough in the early days

24

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February/March 2019

to start off with a number of technical roles
on the underwriting and claims side in
particular, which positioned me well for a
number of the distribution roles.
“The roles I have really enjoyed,
looking back, have been in leadership and
distribution.”
He spent more than a decade with
Elders and QBE, finally as QBE’s chief
executive for Australia and New Zealand,
before leaving in 2016.
He then joined state insurer icare for
about 18 months, an experience he looks
back on fondly.

“There was a really good balance
between driving great commercial outcomes
for the people of New South Wales, but also
with a very strong community and social
focus.
“I really enjoyed that balance and that
perspective. The areas of the business I
was looking after were really around the
government-related entities. I thoroughly
enjoyed it.
“I hadn’t expected to be placing the
state’s reinsurance program and covering
iconic assets like the Harbour Bridge and
the Opera House.”

they have with their customers. Zurich was very underweight in personal lines in
the intermediated space, so Blue Zebra represented a really strong opportunity
for us.”
While the bulk of Zurich’s remediation is behind it, Mr Plant does not rule out
further retreats from unprofitable business.
He says some portfolios are still not delivering expected levels of profitability.
“We are very focused on continuing to remediate portfolios where we are
not getting the technical outcomes we expect. However, I think we are very well
advanced in that process.
“The team has done an excellent job in the past couple of years remediating
underperforming portfolios, and we’ve got a very strong technical focus.”
He believes that while the market is generally hardening and will continue
to do so throughout the year, there is “no shortage of opportunities” in the
marketplace.
But he says “very high-risk property areas” will continue to be challenging.
“We have been very clear on our appetite, we haven’t tended to support EPS
(expanded polystyrene) risk or recycling plants. Those sorts of areas will continue
to be quite difficult and challenging to place over the next 12 months.
“But [that’s not the case] for high-quality business where we’ve had solid
relationships over a long period of time.
“It is not a one-size-fits-all response to the market, and there are different
responses from underwriters depending on the type of business and its underlying
profitability.”
Zurich works exclusively with brokers, and has no plans to develop direct
commercial insurance offerings.
Mr Plant believes brokers will retain relevance and value, even in the face of
rapidly developing technology and consumer expectations.
“We retain a very strong view that brokers have got a lot of value to add with all
commercial customers, from the smallest SMEs all the way through to the largest
corporates,” he says.
“Even in those areas where smaller SME customers can get a direct solution, it
doesn’t take much growth to add a small amount of complexity to their business
where they will need some kind of advice.
“So we continue to think brokers will be best positioned to manage the life
cycles of those customers as well. We have made a very conscious decision not to go
down the path of direct SME.”
As for broker remuneration, Mr Plant says the key is that brokers are paid fairly,
and consumers get value for money.
This could be through a commission or a fee, but he warns too much change too
fast could cause problems.
“I don’t think it makes a huge difference from an insurer’s perspective as to
whether it is a commission or a fee. It is really about brokers getting remunerated
appropriately for the value they are adding to the customer relationship.
“It will be interesting to see how the debate unfolds following the [Hayne] royal
commission final report. I think it is important that customers continue to get really
solid value out of the remuneration they are paying brokers, in whatever form,
but as long as it is transparent and disclosed, then commission is a good way to
remunerate brokers.
“We have got to be mindful of the potential unintended consequences of a
dramatic shift in the way brokers can be remunerated.”
For Zurich, it’s about staying the course, sticking to its strategy and building on
the momentum developed in the past couple of years.
“We have reaffirmed our focus and purpose in the marketplace, and it’s about
making sure we continue to deliver on that,” Mr Plant says. 0

McLean_Eclipse_InsNews[PRINT].indd 1

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01/02/19 8:37 am
February/March 2019 25

HIGHER

FASTER

STRONGER

Commercial premium rates have rallied,
although further increases may be more
muted, the annual industry Barometer shows
By Wendy Pugh

A

recovery in commercial premiums has
gathered pace after rates rose more
than anticipated last year, the annual
JP Morgan Taylor Fry General Insurance
Barometer shows.
Rates increased 9% as the market
continued to recover ground following a
long period in depressed territory, building
on a 3% gain in the previous 12 months.
The improvement follows action taken to
remediate underperforming classes, while
insurers also benefitted from a fairly benign
period for catastrophes and a tailwind from
economic momentum.
Combined operating ratios improved
last year and further profitability gains
are expected as the business environment
remains reasonably supportive. Commercial
rates are forecast to rise 8% this year, with
the increases remaining much higher than
claims inflation, even as economic growth
moderates.
“For Australian insurers a tempering,
but still growing, economy still allows for the
prospect of an upward tick in the insurance
cycle,” the Barometer says.
Cautious assessments a year ago that the
pricing cycle had entered positive territory
have proven correct, although the rebound
remains more muted than past recoveries.

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February/March 2019

The pace of rate gains is likely to slow after
this year, but a still-healthy gain of 6% is
anticipated in 2020.
The expectation is that an overall
profitability improvement that emerged
over the last two years will likely hold into
this year and next, the report says.
The Barometer is based on a survey of
major underwriters, reinsurers and brokers
in the local market, and taps data from the
Australian Prudential Regulation Authority.
The report also has its own substantial
body of trend data. This year’s Barometer is
the seventh between the current partners,
continuing on from 19 editions of the JP
Morgan Deloitte General Insurance Survey.
Three years ago the report highlighted
sliding commercial premiums and a tough
environment for insurers. Commercial
rates then stemmed the decline with a 1%
drop in 2016 before recovering ground in
2017. The 9% rise last year exceeded earlier
expectations for gains of around 5-6%.

in the domestic motor and householder
ratios indicating improved profitability
in these classes, while the premium rates
in domestic classes overall are forecast to
remain broadly stable,” JP Morgan Insurance
Analyst Siddharth Parameswaran says.
Survey participants expect claims
inflation over the forecast period to grow
at moderate levels of around 3% across
domestic and commercial classes.
In claims frequency, commercial classes
have shown more variation compared with
domestic lines, but are expected to increase
at relatively stable rates going forward.
Despite the generally positive picture
some classes remain problematic, with
more remediation still required.
• Fire and industrial special risk rates rose
9% last year after sliding 3% in 2016,
but the combined operating ratio was
still at 106%, despite dropping by nine
percentage points over the same period.
The ratio is forecast to be 101% this year.

Commercial combined operating ratios
have also improved from 101% in 2016 to
96% last year. In domestic lines the ratio
improved to 78% from 90% over the same
period, with the greatest shift seen in
compulsory third party.

• Commercial motor rates jumped 14% last
year, helping the combined operating
ratio to slip to 99% from 103% the previous
year and 105% in 2016. The report notes
that on a normalised basis it is still on the
wrong side of the ledger.

“There has been a slight downward trend

• Professional indemnity profitability has

improved, with the combined operating
ratio slipping back to positive territory at
90% after surging to 154% in the previous
year. Rates rose 10% to counter an 8%
inflation in claims size and a 5.5% rise
in claims frequency. The inflation pace is
expected to remain at similar levels this
year.
The class includes directors’ and officers’
(D&O) cover, partially masking problems
in one of the most stressed areas for the
industry. A number of insurers and Lloyd’s

underwriters have exited the market or
have reduced their exposure.
An Australian Law Reform Commission
report has recommended a government
review of the securities class action regime
after noting that the insurance problems
suggest “something is not quite right”.
The Barometer warns Australia may be
entering an even more litigious environment
in some segments of the economy, particularly
after the Hayne royal commission highlighted
financial services misconduct.

Industry Summary
INDUSTRY PREMIUM RATE MOVEMENTS
Class

2016A

2017A

2018A

Domestic motor

3

5

4

Householders

3

3

4

CTP

7

-1

-5

Personal lines

3

2

2

Fire & ISR

-3

5

9

Commercial motor

3

4

14

Workers’ compensation

-1

1

10

Public & product liability

-2

1

4

Professional indemnity

1

3

10

Commercial lines

-1

3

9

The increased presence of litigation
funders in Australia also suggests claims
activity levels are unlikely to decline and
the class is set to remain a tough area for
underwriters.

Profitability
and
competition
in
commercial classes, particularly in D&O was
named as a key issue by underwriters, while
brokers nominated excess competition and
capacity, particularly in the hardening ISR
market.

3

Several trends in the wider environment
are also presenting challenges for the
insurance sector, according to survey
respondents, with the royal commission
hearings and fallout putting regulation
concerns front and centre.

8

Combined ratios
2016A

2017A

2018A

2019F

2020F

Domestic classes
Domestic motor*

98

101

95

n/a

n/a

Householders*

90

92

85

89

86

CTP

73

44

64

n/a

n/a

Weighted average

90

82

78

81

79

Fire & ISR (commercial property)*

115

113

106

101

102

Commercial motor*

105

103

99

96

97

Public & product lLiability*

77

81

80

79

78

Workers compensation

98

84

92

n/a

n/a

Professional indemnity^

95

154

90

92

92

Weighted average

101

103

96

94

95

Commercial classes

* Starting from 2012 we have used APRA data for these classes, whilst for other classes and prior years we
used company data collected through the survey.
^ The 2017A and onwards, ratios are based on a different mix of participants to 2016A and 2015A.

“This could create serious implications
for a functioning economy if a significant
increase in premiums creates difficulty for
companies to obtain cover at an acceptable
level,” he says.

“Insurers have raised rates, but it is still
performing quite poorly from a profitability
perspective,” Mr Gomes says.

Underwriters, reinsurers and brokers
all named regulation as a key issue and the
Barometer highlights potential impacts from
both the Hayne inquiry and a Productivity
Commission review of financial services
competition.
“There are a number of issues on the
horizon confronting the industry, including
increased oversight from regulatory bodies,
increased losses from cyber threats, surplus
reinsurance capacity and the disruption
of the industry through technology and
insurtech companies,” Mr Gomes says.
Weather impacts also remain an
unknown, with the survey completed before
the effects of the December Sydney hailstorm
and other recent summer catastrophes were
known.
Nevertheless, the various headwinds
are not likely to knock insurers and brokers
off-course. The recovery in commercial
premiums and profitability that gained
traction last year has left the industry well
placed for the challenges ahead. 0

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27

Rise of the
MIDDLEMEN
They’re not universally liked, but consumer
claims advocates have come under the
spotlight following recent catastrophes
By Wendy Pugh

C

yclone Debbie’s timing couldn’t have been worse
for Sarah and David Simmonds*, as howling winds
and rainfall damaged their recently purchased
home before they had even moved in.
The couple found water throughout the house and
external damage too, leading to a claims-handling
nightmare that took a heavy toll, with battles at every
turn.
Insurance claims are usually simple, but when
they’re complex they can develop into a frustrating and
bitter campaign that no one wins. That’s what happened
to Sarah and David. First, questions were raised over
the claim’s eligibility, then progress on repairs was
complicated by problems including the presence of
asbestos and delays in getting revised scopes of work.
Sarah says it was tough to stay informed on their
claim’s progress, requests for updates were not acted
on, documents provided had redacted information and
mould became an issue as weeks passed without any
resolution.
As stress levels grew, they finally engaged a claims
advocate to argue on their behalf, and felt immediate

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February/March 2019

relief. The claim was eventually settled for 150% more
than the original offer.
“He took the pressure off me and said, if you get any
calls from anybody, you tell them I am acting on your
behalf,” Sarah tells Insurance News.
“He took all of those calls and once they realised they
were dealing with someone who actually understood
what they were saying, they were more careful and
started putting everything in writing.”
Major natural catastrophes such as cyclones
Marcia and Debbie have seen more claims advocates
emerge at the consumer end of the market, while the
insurance industry has faced high-profile scrutiny over
its performance.
Insurers can dismiss some advocates as akin to
personal injury ambulance-chasers, and some are
without doubt self-interested publicists who fail to walk
the talk. But people dealing with the claims process for
the first time after a catastrophe can feel overwhelmed,
particularly if matters are not straightforward, and for
them claims advocates are a godsend.

“The third wave will be a year or two later when
it has all turned horrible, and either the insured or
a lawyer contacts us to try help the client,” he tells
Insurance News.
Helping hand: claims advocates believe they can get better deals for insureds

Suncorp Head of Claims Paige Vincent says her
experience is that there are two types of advocates.
“The ones who work in the best interest of the customer
and those leveraging already vulnerable customers for
their own commercial gain.
“Given this, it is very important that customers are
aware of the risks associated with engaging a third
party that proactively approaches them, because there
will be a cost and it is not covered by the policy.”
The situation is different in the commercial arena.
Industrial special risks policy wordings for property
damage and earnings loss were introduced in 1987 and
include cover for claims preparation costs.
Claims services smooth the process, ease the
paperwork burden, help set up a company for recovery
and can benefit all parties, given the complexities and
expertise needed to assess business and accounting
impacts.
“A claims preparer will help their clients through
that policy and take the time to look at them as an
individual business,” says Claim Solutions director
Susan Kelly, who has helped companies after the 1991
Coode Island chemical explosion, the 1998 Victorian gas
crisis and various fires, floods and accidents.

“If we can get in early, we can make sure the right
builders are on it and we can make sure we can advise
on loss mitigation strategies to minimise disruption.”
Professor Manning says claims handling problems
can trace back to false savings on price when insurers
procure loss-adjusting services, and more focus is
needed on building expertise among the next generation
of adjusters.
One homeowner who received help from LMI after
a bushfire says his insurer became more responsive
once an expert was involved, and he wished he had
gained independent assistance earlier.
“Otherwise, it was this excuse and that excuse,”
he says. “I reckon everyone should, at the start, have
someone just go over the process with them and show
them their rights, or whatever.”
Personal home and contents claims, in most
cases, are relatively straightforward compared with
commercial claims, but the Hayne royal commission
has shown systems can fail customers, particularly
after major catastrophes when resources are stretched.
Problems include inadequate temporary repairs
that lead to more damage, delays that allow mould to
develop, lack of communication, issues with rebuild
scopes of work and cash settlement disagreements.

Long-standing claims assistance company LMI
Group says it is often contacted about personal lines
matters, although its focus is on the commercial sector.

In the Hayne royal commission cases studies,
some had sought help from the Financial Rights Legal
Centre, a local MP, claims advocate David Keane and the
Financial Ombudsman Service (FOS).

Managing Director Allan Manning, who is highly
regarded as a loss adjuster, says requests come in three
waves. The first is when an event happens and the
second is after nothing has progressed.

Mr Keane, who advised Sarah and David, angered
insurers after appearing on television program A
Current Affair and suggesting the industry will do all
it can to avoid paying claims. He also accused insurer

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February/March 2019

29

panels of adjusters, builders and other providers as
lacking impartiality.
Points of contention can include whether damage is
due to normal wear and tear or lack of maintenance, and
whether it may date back to previous disasters or events.
Diego Ascani, Chief Executive of Sedgwick Australia,
which last year acquired loss adjuster Cunningham
Lindsey, says claims advisers shouldn’t be necessary for
homeowners, but in some cases they have a role.
“There is a time and place for them, provided
they are doing the right thing and are ethical and are
behaving appropriately and not simply chasing ambit
claims and deliberately putting the insurance industry
in a bad light for the sake of feathering their own nest,”
he says.
The Insurance Council of Australia’s (ICA)
Understand Insurance website warns that engagement
of a claim adviser should be considered carefully and
involves full transparency – the same as for any service
or tradesperson.
Allianz General Manager Corporate Affairs Nicholas
Scofield says insurers have heard of people signing
agreements with advocate fees of up to 20% of the claim
value.
“What we have seen, particularly after natural
disasters such as Cyclone Debbie, is more people
door-knocking, virtually cold-calling, or advertising
and trying to rope people into using services, often
in circumstances where it makes no difference to the
way the claim is processed and the amount that will be
paid,” he says.
Homeowners can take claims problems to the
Australian Financial Complaints Authority (AFCA),
which last year replaced FOS. The service offers free
dispute resolution for consumer and small business
policies up to $1 million, although it comes into play
well after problems emerge.
Financial Rights Legal Centre Policy and Advocacy
Officer Drew MacRae is cautious about the role of
unregulated claims advocates, and says it is important
that consumers can self-advocate in resolving claims
issues at AFCA, rather than having to pay for highpriced assistance.
“The nature of the external dispute resolution is
such that it should be easy to navigate, it should be open
to everybody and in the best interest of the consumer
and fairness, rather than some sort of technical and
legalistic fight,” he says.
ICA points out that general insurers deny only about
3% of claims each year and fewer than 0.6% of Cyclone
Debbie claims ended up with the ombudsman.
Insurance companies highlight efforts they are
making to support consumers during the highly fraught
period after natural catastrophes.
IAG, for example, says its specialist Major Events

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February/March 2019

Team and Major Event Rapid Response Vehicle head to
disaster recovery centres and other locations to provide
on-the-spot services for policyholders, and the group
aims to swiftly deploy experts and complete processes.
Executive General Manager Short-Tail Claims Luke
Gallagher says that in some cases a customer may seek
further assistance from a claims advocate.
“Our focus is always supporting our customers and
we look to resolve any questions or issues with their
claim as quickly as possible, directly or through their
representatives,” he tells Insurance News.
Suncorp has moved to a full case management
approach, in which each policyholder is given a point
of contact for the duration of their claim. It has set up a
dedicated complaints team to better understand causes
and to fix “pain points”, and has established a specialist
team to help vulnerable and impacted customers with
complex claims.
The industry is acting to raise its performance and
reputation against a background of regulatory reviews
and proposals. The Hayne royal commission was held
while ICA was preparing the next iteration of its Code of
Practice, which aims to enhance consumer protections.
The Australian Securities and Investments
Commission (ASIC) says the code should include
standards to make it easier for consumers during the
scope-of-works process, which FOS has highlighted as
an area in which problems arise after catastrophes.
“Initial versions of the document may be inaccurate
or missing items and consumers are required to review
and identify these inaccuracies,” an ASIC spokesman
told Insurance News.
“It can be particularly challenging for post-disaster
claims where scopes of works can be complicated and
require multiple stages of review and revision.”
ASIC says insurers should help consumers
understand the purpose and importance of an accurate
scope of works, explain what is required of the
policyholder at each step and make sure they know
how they can seek assistance.
“Given the importance of this issue for good
consumer outcomes, it seems appropriate and timely
to set out minimum industry standards in the General
Insurance Code of Practice, which is under review,” the
spokesman said.
Whatever changes are made, it’s in the interests of
insurers and their customers to have claims resolved
as quickly and smoothly as possible, and without
increasing economic hardship.
“Only a small minority of retail customers choose
to use claims advocates,” Suncorp’s Ms Vincent says.
“Whether a customer manages their own claim, or uses
an advocate, our process remains the same.” 0
*Real names withheld at the interviewees’ request

A rough ride
Amusement park operators and other
businesses deemed high-risk are struggling
with soaring premiums and limited capacity
By Bernice Han

D

ouglas Campbell was far from amused when he
saw the public liability insurance policy renewal
details for his amusement park, which offers
trampolines, climbing towers, water slides and a host of
other fun attractions.
It would cost about $25,000 for a year, more than
double the $12,000 he’d paid under previous terms. But
that wasn’t the only increase he faced.
The excess for the park’s trampolines had risen
to $20,000 from $1000 – a whopping 1900% rise. In
economics-speak, that easily qualifies as hyperinflation,
which has precipitated economic collapses, most
recently in oil-rich Venezuela.
This is despite the fact his amusement park, Xscape
at the Cape in Dunsborough, a coastal town south of
Perth, has been incident and claims-free since opening
more than six years ago.
No wonder Mr Campbell was unhappy. But he
renewed last November anyway – there were no other
options. A Lloyd’s coverholder in London was the only
underwriter his broker could find willing to provide the
public liability policy Mr Campbell wanted.
“I didn’t have any choice and I’m not impressed at
all,” Mr Campbell told Insurance News. “It was the only
rate I got and the trampolines are an integral attraction
of our overall product. It’s very, very hard to gauge
and make an allowance for this huge increase. It’s not
just the premiums. It’s the excess that is diabolical.
We’ve just got to bite the bullet and work out our cost
accordingly.”

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Mr Campbell’s case is not an isolated one. In fact,
hundreds of businesses around the country that fall
into the “high-risk” or “hard-to-place” category are
encountering barriers.
Not only have premiums and excesses spiked, but
obtaining cover, as many businesses have discovered,
is proving difficult. They have been forced to turn to
offshore markets such as London, where the cover is
available but the terms and conditions are often more
stringent.
Business owners whose enterprises fall outside
the risk norms have told Insurance News they have
followed the advice of their brokers and overhauled
risk management systems just to nail down a policy.
A blowout in claims losses, caused mainly by a spate
of serious incidents in similar industries in Australia
and abroad, is to blame. The effect has been most
pronounced on trampoline centres, amusement and
theme parks, recycling centres and the food production
industry.
Mr Campbell says the industry is wrong to ignore
his park’s clean safety record. He believes his business
is being unfairly lumped in with other trampoline
operators, especially new entrants running indoor play
centres, where the incident rate is high.
“But with insurance, it’s all to do with statistics,
isn’t it? And we have been caught in this. We have

an exemplary record. We shouldn’t be penalised and
weighed up against others.”
Many others are in a similar predicament. Businesses
that have historically performed poorly, such as large
hospitality groups, nightclubs and supermarkets, are
having an unusually hard time buying public liability
insurance.
“I have seen an example where an insured party
has purchased a hotel with inferior construction and
three weeks later still has no property insurance in
place,” Precision Underwriting Senior Underwriter
Paul Douglas tells Insurance News.
“I have also seen an operator of an indoor play
centre with some small trampolines who cannot secure
public liability insurance and is probably going to have
to close up shop.
“The insurers have become more vigilant over the
past 12 months and have become far more particular
about what they will write. It’s not due to any specific
large losses, it’s due to long-term poor performance.”
And it won’t get any easier for businesses hoping
the market cycle will turn and insurers will return to a
less stringent risk appetite.

Not happy: amusement park owner Douglas Campbell

“It’s not a matter of waiting until this ‘underwriting
attitude’ blows over,” Mr Douglas says. “Insurers need
to provide better results for their shareholders, or the
underwriters who aren’t performing will lose their jobs.
“This means brokers and their clients need to riskmanage better or their clients will find themselves
uninsurable.
“The insurance market doesn’t owe it to the client
to find insurance. The insured party needs to play their
part in making their risk exposure more attractive to be
offered insurance.”
More than two years after a ride malfunction at the
Dreamworld theme park on the Gold Coast saw four
visitors died, the effects still reverberate.
HIB Insurance Brokers Managing Director Michael
Alexander says serious incidents in other countries and
reduced insurer capacity have also pushed up rates.

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33

Ride operators and amusement parks have seen
public liability premiums and excesses soar in the past
three to five years, he tells Insurance News.
“Some increases have been more than 300% for
both premium and excesses. Insurers are now asking
more questions when looking at these risks around
the risk management and safety checks, educational
programs for staff, how staff are being trained.”
Huge fires at an abattoir in South Australia early
last year and a Queensland pork processing plant in late
2016 marked a turning point for property covers.
Broker Gallagher has noted that the $750 million
in insured losses from these two fires destabilised a
“typically benign” property market, pushing insurers
to adopt a hard-line approach to properties at which
expanded polystyrene (EPS) is present.
About 80% of domestic food facilities have been
constructed using EPS panels which offer superior
insulation for perishables but are extremely
combustible.
Insurance rates for food-related premises with
combustible EPS panels grew steeply after the two
incidents, and all signs suggest the sector will endure
at least another two years of tough market conditions.
“It’s the catalyst for the industry to draw a line with
EPS,” Gallagher’s National Head of Food Production
Stephen Elms tells Insurance News.
“The insurers’ mindset these days with EPS
buildings is, if it catches fire, it more often than not is
going to be a total loss. It’s totally driven by the amount
of EPS in the building.
“We thought last year was tough, but I think this
year is going to be worse. The insurance market is a
cyclical thing, so it will turn at some stage, but my own
opinion is I’m not sure we will ever get down to the
same levels that we have seen.”
Even businesses that qualify as “well protected”
from fire-related risks have seen property risk
premiums increase 30-40%.
“I would stress that those very well managed
accounts focusing on improving their own internal risk
management process with the goal of mitigating fire
risk to the EPS are the minority, not the majority,” Mr
Elms says.

providing over the past decade or so.’ ”
A capacity squeeze is also pushing up rates. The
local market is left with just two insurers – QBE and
Allianz – with the capacity to lead a multi-insurer
property program, he says.
Before the market upheavals, up to eight insurance
players had the resources to spearhead a medium to
large program. Under present conditions, bigger food
producers have turned to offshore markets.
Gallagher has been procuring programs from
Lloyd’s, placing clients in competition with other foreign
producers for the same pool of capacity. Under such
circumstances, buyers have little bargaining power.
“If we talk about Lloyd’s in particular, it’s a global
marketplace for them,” Mr Elms says. “The Lloyd’s
market can pick and choose where they want to utilise
their capacity and at what price. They call the shots at
present. They will say, ‘This is my rate – if you don’t like
it, fine,’ and they walk away.”
Replacing EPS panels with newer non-combustible
materials is probably the only sure way to guarantee
reductions in premiums, but it can be an extremely
costly exercise, even for large food businesses with
deep pockets.
Gallagher has advised clients on steps to secure
better rates, including installing sprinklers, investing in
other fire protection and suppression systems, ensuring
business continuity processes are robust and examining
other ways to continually improve risk management.
“One of the best ways to combat these increases is
to improve what clients already have internally with
respect to their risk management processes,” Mr Elms
says. “If there are any shortcomings or housekeeping
issues that haven’t been rectified, rectify them quickly.
If there is a business continuity plan that hasn’t been
documented into a formal document, get it documented
in a formal document.
“And if you can clearly show the insurance market
that all these processes and procedures are in place, it
does have a flow-on effect. These are very simple and
low-cost areas that can have a huge payback to an
organisation’s insurance cost.”

Huge claims from food manufacturers in the Middle
East and the US have not helped matters.

The role of an experienced broker is critical. “It
comes down to the broker, again, to really make sure
the client is doing everything possible to improve their
risk profile, and the broker should be using every bit
of positive information available to ensure their clients
are receiving the best possible deal,” Mr Elms says.

“Globally, the sector has been, for lack of a better
word, burning,” Mr Elms says. “Insurers have drawn a
line in the sand and said, ‘We can’t continue to support
these businesses at the premiums that we have been

“Property surveys, risk management reports,
business continuity reports…all of those should be
used as well as highlighting any improvements through
capital injection and continued maintenance.” 0

“Clients, in conjunction with their brokers’ advice
and assistance, need to focus on this area because it will
pay off in minimising the level of premium increase.”

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mine disaster in southern Africa gave Sedgwick
Australia Chief Executive Diego Ascani an
early introduction to the art and science of
loss adjusting, and the difference it can make for
communities.
Heavy rain led to the failure of an embankment at
the mine in the Free State province town of Virginia,
with the resulting flood taking lives and destroying
homes and possessions.
Multiple insurers and reinsurers were involved
and, as a loss adjuster for GAB Robins, Mr Ascani met
the people affected, learned about their circumstances
and signed documents that released funds for the
community’s recovery.
Mr Ascani was based in Johannesburg and travelled
widely in Africa, handling claims that included flooding
at a Mozambique aluminium smelter, cashew nut
production losses and damage when a ship hit a gantry
crane in Maputo harbour.
“I loved being able to go into a place and see it
being rebuilt, and then eventually shake the hands of
the insureds and say, ‘You are up and running again,’ ”
Mr Ascani tells Insurance News. “That, for me, was so
tangible.”
Mr Ascani joined GAB Robins after studying law
and completing his articles with a firm active in South
African motor vehicle accident claims.
GAB Robins was later taken over by Cunningham
Lindsey, a long-established loss-adjusting firm, which
was last year acquired by Memphis-based global claims
administrator Sedgwick. The combined group has
about 21,000 people across 65 countries.
Mr Ascani moved to Australia in 1999 after his
insurance work highlighted rising violence in South
Africa, and in some respects his career has since come
full circle.
In Sydney he worked as a loss adjuster while the city
recovered from a hailstorm that remains Australia’s
most costly natural disaster on record. He updated his

law qualifications to meet local requirements, held
positions with the actuarial and insurance practices
at Deloitte and PricewaterhouseCoopers, and was
seconded to assist the HIH royal commission.
Later he led Xchanging in Australia, overseeing
operations including workers’ compensation contracts,
before joining Cunningham Lindsey as chief operating
officer in 2017.
Sedgwick Australia launched last November,
consigning the Cunningham Lindsey brand to history,
with Mr Ascani leading a business with a network of
more than 40 offices and about 600 people.
The acquisition also gives Sedgwick an entrée for its
wider suite of services. The group is a major player in
US workers’ compensation and has a strong corporate
customer base for its third-party administration
offerings.
As Chief Executive, Mr Ascani is elevating a
customer-centric focus that reflects Sedgwick’s core
role helping people recover from losses, while also
building on Cunningham Lindsey’s solid foundations as
he takes the traditional loss adjuster forward.
“The company isn’t as change-ready as it could be
in this fast-changing technology environment, so my
priority is really future-proofing the business, making
it sustainable and making it more agile to meet our
clients’ existing and future needs,” he says.
Sedgwick has also undergone an ownership shift in
recent months, with private equity investor the Carlyle
Group buying a majority stake from KKR.
Mr Ascani says this adds to the momentum, with the
venture capitalist likely seeking efficiencies, improved
performance and growth from its investment.
Early impacts from the Sedgwick acquisition
include kick-starting a technology overhaul, with
the Cunningham Lindsey business benefiting from
the global expertise of a 700-person IT department. A
new platform will link Australia with international
operations, providing transparency and access benefits

insuranceNEWS

February/March 2019

37

send information to remotely located building
and construction experts, engineers and forensic
accountants.
“It is a combination of our national footprint
combined with technology that is very powerful. These
things are coming together,” he says.
The insurance industry is under continual pressure
to improve its performance after major catastrophes,
and drew fire during the Hayne royal commission for
responses to Cyclone Debbie, Victorian bushfires and
other storms.
Mr Ascani says technology can help better triage
claims and reduce timeframes. Ensuring effective
temporary repairs, building in ways that mitigate
against future problems and containing costs are key
requirements.
“We have got to make sure as independent loss
adjusters that building costs and the quantification and
the adjustment is correct, so there is no gouging of costs,
which ultimately has an adverse impact on premiums,”
he says.
Cunningham Lindsay and rival Crawford & Company
have been the dominant loss adjusters in Australia in
recent years, with McLarens in third position ahead
of smaller, niche providers. This compares with a few
decades ago, when many smaller operators were active.

New team: Mr Ascani heads up Sedgwick’s Australian operation following the acquisition of
Cunningham Lindsey

and an improved interface for clients.
Australia and New Zealand are a focus area for
Sedgwick, due to opportunities within the countries
and their proximity to Asian markets with accelerating
growth rates.
“We are represented in nine countries in Asia, but
the teams in those counties are fairly small, so Australia
is well placed to support the rest of Asia,” Mr Ascani
says.
The technology upgrade will allow the business
to further benefit from changes already affecting
loss adjusting. Drones are reaching areas otherwise
impossible or dangerous to enter after disasters, while
virtual reality tools can gather information for experts
thousands of kilometres away.
Data will increasingly support improved analytics
and modelling, helping mitigate future losses
and providing tools to respond more quickly and
economically when events occur.
Mr Ascani says after major catastrophes, Sedgwick
can quickly set up control centres as close as possible
to damaged areas, while technology can rapidly

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February/March 2019

Mr Ascani says large players have scale and strong
corporate governance and data protection, while also
offering specialty expertise. The personal reputation of
individual adjusters remains important and insurers,
for the most part, still select from a panel to access the
right people for various events.
The focus is often on the technical aspects of
assessing claims and preparing reports, but Mr Ascani
says that should not overshadow the personal side, and
delivering outcomes for people is at the heart of the
role.
Sedgwick has registered its catchphrase “caring
counts” with the US Patent and Trademark Office
and Mr Ascani says a cultural focus on looking after
colleagues and customers is as relevant to loss adjusting
in property as to claims in the health and safety arena.
“There is an art and a science to loss adjusting.
The science we could get 100% right – policy wording
is correctly defined, and we have adjusted the loss
correctly – but in the process the art might have been
lost.
“We need to show more care, compassion and
customer satisfaction, while not losing our technical
expertise.”
He says the Hayne inquiry is likely to help
hone the insurance industry’s customer focus and
restore consumer faith in the sector, just as the royal
commission on the HIH failure, nearly two decades ago,
led to reforms to the Australian Prudential Regulation

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and
customer
satisfaction,
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losing our
technical
expertise.”

Authority (APRA) and other changes.
Mr Ascani was involved in the HIH inquiry for two
years, looking into the group’s claims management and
reserving methodologies and philosophies, and was an
expert witness for the royal commission.
“I saw first-hand how a poor culture, particularly
around claims management, can really impact clients,
and also ultimately led to HIH going into bankruptcy,”
he says.
“The positive was that the royal commission
identified a number of deficiencies, not only with APRA
but also with the insurance industry, and that has stood
the industry in good stead to withstand a lot of the other
risks and challenges it has had since HIH went under.”
Other key issues facing the insurance industry
include evolving cyber risks, building material issues
highlighted by the Grenfell and Lacrosse fires, and
impacts from dust diseases and fumes, he says.
Globally, Sedgwick is focused on diversity, and Mr
Ascani says addressing the gender imbalance in its

40

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February/March 2019

Australian operations and bringing younger people into
the industry is an important goal.
“The legal profession and the accounting profession
have been successful in evening out the gender
inequalities. One of my priorities is attracting more
talent, and certainly getting a better balance and
creating the right environment to attract more women
into the industry.”
Mr Ascani says his early time as a loss adjuster
marked some of the most enjoyable years of his career
and helped draw him back into a sector that, he says,
has a strong social purpose, leading ultimately to the
role heading Sedgwick Australia.
He says the Australian insurance industry is strong
and performs well in supporting the economy, and the
businesses and people who take out protection against
the unexpected.
“It is almost the oil of the economy – it keeps it
going and when things break down, it gets them up and
running again.” 0

We’ll make the hard
market easier for you

02 9299 5777
enquiries@fleetsure.com.au
www.fleetsure.com.au

Are the major insurers being difficult?
• BDM too busy?
• Left too many messages for underwriters?
• Not happy with the options?
• Computer says no?

n the afternoon of April 14 1999 a
catastrophic hailstorm tore across
eastern Sydney, causing billions of
dollars in insured losses. Nearly 20 years
later, just before Christmas last year,
residents received a sharp reminder of hail’s
capacity to inflict damage.
That 1999 storm became Australia’s most
expensive natural disaster, at $5.6 billion in
inflation-adjusted figures.
The city’s CBD had managed to avoid
intense hail damage since then, until last
December’s costly burst.
Hailstorms that battered Sydney and
many other New South Wales communities
on December 20 prompted almost 100,000
claims in a month, and claims at the start
of February were closing in on $1 billion,
according to the Insurance Council of
Australia. One analyst has predicted that the
total insured losses from this event could
reach $2 billion.
There were reports of hailstones almost
eight centimetres wide, and in the month to
January 21 there were 71,475 motor vehicle
claims, 22,057 home building claims and
4563 contents claims.
“Sydney, because it had not been
impacted for a while, may have been more
vulnerable than people thought,” Monash
University researcher and hail expert Joshua
Soderholm tells Insurance News.
“When you have areas that have more
frequent thunderstorms, people are often
more aware and have better places to put

42

insuranceNEWS

February/March 2019

their cars and so on. People in Sydney may
not have realised hailstorms can impact
their region.”
Hail ranks among the biggest natural
cost drivers for insurers.
Dr Soderholm is harnessing new
technology to enable actuaries to create
better risk profiles for hail-producing
storms. Improved radar systems, a new app
called WeatheX placed in the hands of citizen
scientists, and the social media tag #uqhail
will soon allow insurers unprecedented
access to data. This will better indicate the
likelihood of hailstorms and the probable
damage.
Work at Monash University’s School
of Earth, Atmosphere and Environment
is designed to enable insurers to better
forecast the frequency, size and potency
of hailstorms based on accurate historical
patterns.
“In the future, insurers will access this
dataset and use it on top of their existing
datasets to better understand risk,” Dr
Soderholm says. “We don’t have models that
can predict the future. We really have to go
back to our data.
“So we take the reports people have
provided us, and we can use radar data,
to build up a picture – a map essentially –
over decades from some of these datasets of
where hail-producing thunderstorms have
been through.”
Brisbane is Australia’s most hail-prone
capital, with Sydney close behind. For hail

up to about 6cm in diameter, vehicle losses
are the primary source of cost to insurers.
Newer cars are more vulnerable, with the
steel thinner and the panels larger and more
costly to replace.
Above 6cm, hailstones will damage
roofing and skylights, causing expensive
flooding. While building code changes can
mitigate against other natural disasters
such as cyclones, the main defence against
hail is giving people enough warning to
move possessions such as vehicles and farm
equipment out of harm’s way.
“Hailstorms are a particularly thorny
issue for insurance,” Dr Soderholm says.
“They are especially hard to protect against
and it takes only one big event to blow costs
through the roof, so to speak. They can
create a lot of trouble.”
Dr Soderholm recently returned from a
trip to Argentina, where frequent hailstorms
in the west present ideal conditions to study
the fine-scale processes that produce hail.
After completing an undergraduate
degree in mathematics that touched on
meteorology, Dr Soderholm undertook an
honours project examining the south-east
Queensland region, seeking to understand
why there were more thunderstorms in
some regions than others.
That was followed by a PhD investigating
thunderstorms, which focused on the impact
of sea breezes.
“There are a lot of questions about
thunderstorms in Australia that just haven’t

been answered,” Dr Soderholm, who grew
up in Queensland, says. “From my PhD we
have a much better understanding of why
some thunderstorms intensify and why
some might weaken, and it really does come
down to how strong the sea-breeze wind is.”
When insurers want to understand risk,
particularly beyond their own records or
claims, they refer to thunderstorm databases.
The coverage that data offers is critical in
assessing the true risk of thunderstorms,
and for comparing the relative risk to a city
such as Brisbane or Sydney, and on down to
the suburb level.
The WeatheX App harnesses vast
layperson interest in weather across
Australia, reflected in the hundreds of
thousands of people following social media
groups discussing weather processes. Dr
Soderholm and his team are reaching out to
these “citizen scientists”, encouraging them
to use the app to report what they see during
bouts of intense weather.
A public dataset built from these
reports will be made available, illustrating
the occurrence of severe events but also
capturing smaller hail falls that are a
frequent and a costly headache for car
insurers.
“For every big event there are maybe 100
small events that are slowly eating up the
money from insurance,” Dr Soderholm says.
“Speaking to insurers, that is a big problem.
These are little storms, but there are many of
them and they eat up claims.”

The app has attracted 5000 downloads
and almost 500 reports in just a few months,
all of which will be collated and fed to a
central database.
“We are trying to build a more thorough
database across Australia, rather than
just capturing little pieces of events. If we
can start to get hundreds of reports from
individual events, our ability to map them
will be so much better. There is a lot of
potential out there and we are getting closer
to being able to use it for forecasting down
the track.”
The Monash research team is also
starting a project to improve the prediction
of hail size and area using radar.
The Bureau of Meteorology is investing
tens of millions of dollars in upgrading its
radar network, and this offers new ways
to improve hail detection and forecasting.
The improved radar allows scientists to see
where hail is and to estimate how big it is,
and to distinguish between heavy rain and
hail.
That improves confidence in warnings
and gets more accurate information to
people. Even the 30 to 60-minute warning
weather radar offers is enough to allow
people to move property and take shelter.
“This new radar not only tells us how
intense the precipitation is, it tells us the
shape of it, if it is round or flat raindrops,
so we get a much better idea of what is
actually in the cloud,” Dr Soderholm says.
“Our skill at estimating hail size and the area

where it’s going to fall is pretty good using
radars, because we are not modelling. We
are actually observing. We already know it
is there, we are just saying, ‘It is going to fall
in this place.’ ”
In future, this information will be
available to city councils and insurers,
which can contact affected populations with
accuracy.
As more houses are built away from
cities, the risk is the population encroaches
on areas that might experience more
hailstorms. This risk is little understood
because people have not lived in these places
before. The Monash team has identified this
as a problem for our growing population.
Timing is also everything. In 1999 the
storm arrived in the afternoon and carried
on through Sydney’s peak commuter rush.
“It was really the time of day,” Dr
Soderholm says. “We have had hailstorms
on the weekend and the losses are a lot
lower just because people weren’t travelling
around.
“If we can improve warnings by
providing a much clearer picture of the
hail size, for example, we will be able to
encourage people to get vehicles undercover,
protect their homes, and basically encourage
actions that reduce the amount of damage to
their property.”
New technology is expected to improve
the reporting of a wide range of severe
weather, with a focus on hail, wind damage

insuranceNEWS

February/March 2019

43

and tornadoes – though the conditions
that can produce thunderstorms are more
random and “stochastic”, and difficult to
characterise than, say, tropical cyclones.
The research team has also investigated
crop damage. While in the US tornadoes
garner much attention, a tornado track
might be only a kilometre or so wide and
they are quite short-lived. A hail track is
generally wider and hailstorms are more
frequent.
While farmers can’t do a lot with
warnings except cover up equipment and
themselves, Dr Soderholm says there is
value in having information on frequency
of hailstorms, because this helps to better
inform insurance companies about risk.
The WeatheX app and new radar will go
some way to redressing the disproportionate
investment in understanding bushfires and
flooding compared with hailstorms, despite
the headache numerous small hailstorms
and giant hail events inflict on the insurance
industry.
“People don’t consider it life-threatening
and people don’t see hail as a problem for
communities, more a problem for insurance
and industry,” Dr Soderholm says. “But it
costs the country a lot of money.” 0

arly this year, as bushfires spread across
Tasmania, those of us lucky enough to live outside
the danger zones were left asking the usual key
questions: has anyone died, and how many people have
lost their homes? The answers at time of writing were
mercifully low, although swathes of wilderness were
affected.
But Australians know from bitter experience how
horrific the human toll can be.
Wye River, Yarloop and Winmalee are among
communities to suffer devastating losses in recent
years. Black Saturday still haunts the nation a decade
on.
And the risk is growing. Climate change threatens
to make bushfires more frequent and intense, while
urban sprawl is putting more people in harm’s way.
The issue of climate change is global, and requires
global solutions. Urban sprawl can be at least partly
addressed through smart planning and building design.
And, as bushfire architecture expert Ian Weir tells
Insurance News, it doesn’t have to involve destruction
of the bushland that makes the Australian bush such an

46

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February/March 2019

attractive place to live.
His home designs aim to “fly the flag for lifestyle
and swing the pendulum back towards landscape
conservation, and away from landscape clearing. But,
unfortunately, the pendulum is being held very much
on the side of landscape clearing all around Australia.”
Insurance News asked Dr Weir – an architect,
Queensland University of Technology academic and
adviser to the Bushfire Building Council of Australia –
for a virtual tour of the ideal bushfire-resistant home.
Karri Fire House in Denmark, Western Australia,
fits the bill in more ways than one.
Built to withstand Bushfire Attack Level (BAL) 40,
as dictated by standard AS3959 under the National
Construction Code (see breakout), the home belongs to
a retired firefighter whose fire plan dictates he will stay
to defend the property.
Dr Weir and his co-designer (and wife) Kylie Feher
sought to create a home that would give the owner
enough confidence to do that.
“The house is all non-combustible, which is your
first principle,” Dr Weir says. “There’s nothing on the

Ideal homes
and gardens
Smart design can help country
property owners mitigate fire
risk without taking a chainsaw
to the bush around them
By Andy Swales

exterior of this building that will combust in a fire.”

in sarking of no more than 2mm.

The flooring is concrete and raised from the ground.
“A lot of fire-prone sites are very undulating, so it’s not
as if you can build a house on the ground. In most cases
it’s more cost-effective to make it more elevated.”

Sarking on the Karri Fire House – completed in late
2014 – is called Phoenix EA, made by TBA Firefly. “These
guys make suits for firefighters and fabrics for furnaces
and so on. They’re the leaders in fabrics. That’s what we
wrap the whole house in before the roof sheeting and
the wall sheeting [are] put on.”

The walls are concrete block with metal cladding.
“Of course, [all this is] not only non-combustible but
basically fireproof. We call all that the first line of
defence.”
The second line of defence is sarking – material that
lines the walls and steel roof.
“There [was] a weak link in AS3959, which has
been identified, and that is that conventional sarking…
is a flaw,” Dr Weir says. “It will fail when exposed to
too much heat and therefore let embers into… those
invisible parts of the house, the wall spaces and the roof
cavity.
“Ninety per cent of houses are lost through ember
attack, not through flame contact, and that’s generally
[through] gaps greater than 2mm.”
Dr Weir says the latest standard – issued in
November, and to which he contributed – calls for gaps

Insulation is made from non-combustible rockwool,
providing a third line of defence.
Dr Weir says the biggest contribution to cost when
building a fire-resistant home comes from decking and
verandas.
“You’re usually making them out of timber, of
course, [but] you can’t do that at BAL 40 – you’ve got to
use steel. I’ve found about 3% of the cost of construction
was the verandas.
“We’ve used a BAL 40-rated decking product
– there’s a couple available commercially – called
ModWood. The added bonus is, it’s incredibly lowmaintenance.”Without the need for regular upkeep
such as weatherproofing, he reckons steel structures
“probably pay for themselves over 10-15 years”.

insuranceNEWS

February/March 2019

47

Windows feature toughened glass and are protected
by metal mesh screens.
“This is one of the key design features of the house
– we made all the glass slide… and then coupled that
with a [radiant heat] sliding screen, and that is used on
a daily basis, because we’ve got a site that has a lot of
insects, so you’ve got to activate all those screens,” Dr
Weir says.
By working fire protection into everyday utility
such as flyscreens, mitigation is ever present.
In contrast, the alternative to smart design – major
vegetation clearance – is often poorly maintained.
“It’s something you’re going to do once a year,
and then it’s going to slide. Even though a lot of local
governments and state policy says [fuel clearance] has
to be done in perpetuity, it’s still something that’s only
done for bushfire reasons.
“Whereas if you have, say, a shutter system on a
house you have to operate every day to control the sun
and wind and insects, it’s going to be actually working,
and will work in an emergency – and you’re going to
know how to make it work because you use it every
day.”
And while the best design and building products
can be costly upfront, “it costs thousands to [clear
bush]… cutting down a tree can be anything between
$2000 and $5000”.
Dr Weir says a lot of what’s required is separation
of [tree] crowns, “so clearing a lot of trees to get the
necessary crown separation involves huge costs, and
to what end? What you end up with is a site you don’t
want to live in.
“We’ve seen this first-hand in the Blue Mountains
since the Winmalee fires there in 2013, where the
amenity has just been annihilated.”
He says poor upkeep of landscape maintenance
means many homes are built to lower standards than
the actual risk they end up facing, creating threats to
lives and property, and causing underinsurance.
In fact, he considers the insurance industry a “weak
link” in the nation’s bushfire preparedness.
He notes Suncorp’s work with partners such as
James Cook University on cyclone protection, and says
similar projects to promote innovation in fire mitigation
are needed “to help people reduce their exposure that
way”.
“For example, in the Flame Zone [highest] level of
exposure, there are only two commercially available
shutter systems.”
These items can cost about $1000 per square metre
of window, he says. “We don’t see much encouragement
in development of alternatives... we need more
research, we need better testing.” 0

Standard procedure
The national standard AS3959 covers construction in bushfire-prone
areas, outlining safety requirements for buildings facing six Bushfire Attack
Levels (BAL), mostly expressed in terms of exposure to radiant heat (kW per
square metre).
A property’s BAL should be determined by an independent assessor, with
fire services often taking the lead rating higher-risk properties, according to
Dr Weir.
The BAL ratings run from BAL Low and BAL 12.5 through to BAL 40 (the
Karri Fire House) and Flame Zone.
On top of this, Dr Weir says states can add special statements to
the National Construction Code, and local planning policies also affect
requirements.

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Fires reveal shape of
things to come
Under a changing climate, previously rare catastrophes will
occur more frequently, writes David Sinai, Head of Property
Treaty Underwriting at Swiss Re Australia and New Zealand

A

s a catastrophe reinsurance underwriter, I keep a keen eye on what is
happening in the world of natural
disasters, and the factors that drive them.
A key driver of risk for weather-related
natural hazards and bushfires is an increase
in ambient temperature – our world has
been getting warmer since 1850, and
especially since the 1960s.
In an effort to tackle climate change,
the Paris Agreement was created at the
United Nations Climate Change Conference
21 in 2015. The agreement aims to cap
global warming to less than two degrees,
preferably 1.5 degrees.
To many, a two-degree average global
temperature increase may not sound too
alarming; and some may be left wondering
why aiming for 1.5 degrees is so important.

50

insuranceNEWS

February/March 2019

In simple terms, at 1.5 to two degrees
warming there will already be serious
implications for our planet and society.
However, it is at the extremes where this
seemingly moderate rise will be felt more
acutely – as average global temperatures
increase, we can expect to see a non-linear
response in the tail of the severe weather
distribution.
Under a changing climate, previously
rare events will occur more frequently, and
extreme catastrophes will likely redefine
our historical benchmarks of such events.
When it comes to bushfires, it would
appear this trend is already playing out here
in Australia and around the world.
Last November Queensland experienced
record temperatures and heatwaves. In
that month, about 200 bushfires were

burning across the state. Other Australian
states are well known for heatwaves and
bushfire outbreaks, but the recent events
in Queensland are unprecedented. There
are several drivers at play, and a warming
environment is at the core1.
This summer has continued to serve up
severe heatwaves across the continent.
The Australian Bureau of Meteorology
released a special climate statement2
regarding the “unusual extended period of
heatwaves” in December and January.
The executive summary lists just some of
the many records recently broken, including:
hottest national average December day; five
consecutive days of nationally averaged
mean maxima above 40 degrees; numerous
locations reporting highest daily maximum
temperatures; a new record for the highest
minimum temperature; and Australia’s

seeing the impacts of a changing climate
on wildfire risk. Early last year Swiss Re’s
annual natural catastrophe Sigma report4
reviewed the 2017 wildfires in California.
The combination of long-term drought then
the wettest winter and hottest summer
on record created perfect conditions for
wildfires.
The report also showed that fire seasons
are lengthening – the average burning time
for large fires (more than 400 hectares) has
increased significantly from six to 50 days.
Large fires are also occurring more
frequently – 20 additional large fires
happened each decade over the period
1973-2012. Climate change will continue to
increase fire frequency and severity as the
earlier onset of spring leads to extended,
warmer and drier summers.
Last year’s California wildfire season
adds yet another convincing data point: it
was the most destructive season yet seen,
following a record year in 2017.

warmest December.
January followed suit, taking the title for
hottest month on record3. It was not much of
a surprise to then see widespread bushfires
in Victoria and Tasmania during January
and February.
At the time of writing, the fires have
devastated large swathes and are still
burning. However, the 10th anniversary of
the Black Saturday fires in Victoria reminds
us how the outcomes of this fire season (thus
far) could have been much worse.
Elsewhere around the world, we are

Insured loss estimates quoted by
industry media are in the range of $US15$US20 billion, and will affect catastrophe
covers and catastrophe bonds for a second
consecutive year.
California is not the only place in
North America experiencing significantly
increased wildfire risk. The 2017 fire season
in British Columbia brought a new record
for burned area. The average temperature
there is already 1.7 degrees higher, pushing
the Paris Agreement targets.
Increased temperatures lead to drier
fuels, more lightning strikes and more fires.
In northern Alberta the extreme fire risk
has already increased by a range of 1.5 to six
times due to climatic changes5.

Under a changing climate, it is expected
that more regions will become susceptible to
wildfires, while events in known risk areas
are predicted to get worse.
Devastating fires in Greece last July
marked the second-deadliest wildfire event
of the 21st century after the Black Saturday
fires. Rare wildfires in Sweden last year –
occurring above the Arctic Circle – might not
be so well known.
These increases in fire hazard – spatially
and in terms of frequency and severity
– combined with a rise in the number of
risks at the urban-woodland interface will
materially increase wildfire risk on a global
scale.
With Queensland having suffered its
largest bushfire event in history, and with
temperature records being broken across
the continent in consecutive months, we
will be monitoring the remainder of the
Australian bushfire season very closely.
Whatever transpires, we know that,
globally, wildfire risk is increasing because
of a warming planet. Meanwhile, after
the UN Climate Change Conference 21 (in
Katowice, Poland, last December), experts
agree that we can, and must, do more to
meet the Paris targets, the benefits of which
would reach far beyond keeping a lid on
increasing wildfire risk. 0
[1] https://www.bnhcrc.com.au/hazardnotes/55
[2] http://www.bom.gov.au/climate/current/
statements/scs68.pdf
[3] https://www.abc.net.au/news/2019-02-01/
australian-weather-hottest-month-on-record-injanuary/10769392?pfmredir=sm
[4] https://www.swissre.com/institute/research/
sigma-research/sigma-2018-01.html
[5] http://theconversation.com/how-will-canadamanage-its-wildfires-in-the-future-86383

insuranceNEWS

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51

People power

Finding good people: Don McLardy

M

elbourne-based brokerage and authorised
representative network McLardy McShane
is growing fast – both geographically and in
breadth of offerings.
But crucial to its success is the way it is approaching
that expansion, with people and culture at the core of
its strategy.

McLardy McShane brand, and we have just settled on a
joint venture in Perth,” he says.
“We don’t go to places and try to find the person;
we try and find the people first and build our business
around good people.
“With the AR network, again we are attracting good
ARs, building around good quality people.

“It is all about having people that add to our brand
and culture and not just growing for growing’s sake.
As it is turning out we are continuing to grow very
strongly.”

In 2011/12 group premium income was less than
$20 million, and by 2015/16 it was up to $70 million.
Now it’s more than $120 million, with the AR network
generating more income than the brokerage network
for the first time.

The company has raised well over $1 million for
organisations including the Reach Foundation, which
aims to improve the resilience and wellbeing of young
people.

Founded by Mr McLardy’s close friend, Melbourne
AFL champion the late Jim Stynes, Reach and its Irish
equivalent, Soar, are close to the company’s heart. But a
range of other good causes, including Beyondblue and
Boys to the Bush, have also been backed.

“We have our regional network throughout Victoria,
but also in the past couple of years we’ve expanded in
Sydney, we have a joint venture in Brisbane under the

At the end of last year, nearly 700 people attended
the company’s 10th Reach luncheon in Melbourne,
raising about $80,000. Speakers AFL legend Kevin

52

insuranceNEWS

February/March 2019

How a growth strategy built around culture and
reputation is paying off for broker McLardy McShane
By John Deex

Sheedy and former Essendon player and coach James
Hird were “extraordinary”.
As an indication of the esteem in which the
company’s fundraising efforts are held, Mr Hird
attended despite suffering severe injuries in a cycling
accident just days before.
“He rang me on the Sunday when the lunch was on
the Wednesday and I thought he was going to say he’d
have to pull out.
“But he rang to say he absolutely wanted to come,
even though he had more than 20 fractures in his wrist
and had basically busted his knee in half.
“He said he was still on morphine but if we could
organise the transport to pick him up and help him to
get in and out he would still love to do it.
“It was a pretty courageous performance to come
and speak. His speech was the best we’ve had, and
we’ve had some pretty great guests over the years.
“You could have heard a pin drop. It was incredible.
It was nothing about the drugs scandal [that overtook
the Essendon club when Mr Hird was its coach]. It was
about him, his life, his children, overcoming adversity.

“It was a great link with Reach. It was about saying
no matter what you have got to overcome, whatever
adversity you face, there is support there, and for young
people that is a great example of how to approach
things.”
Mr McLardy and company co-founder Mike
McShane are clear that there are very personal reasons
for the company’s charitable focus.
“Mike and I have a total of seven kids, and we are
happy and healthy,” Mr McLardy says.
“We’ve been in the insurance industry all our lives
and we feel quite privileged. We feel like we should be
giving something back because of how fortunate we’ve
been.”
But it’s more than a personal crusade. The
charitable endeavours have become a crucial part of
the company’s identity.
Mr McLardy believes the development of this
culture lends trust and credibility to the McLardy
McShane brand. It’s not tokenism, but a very deliberate
part of what the company does.
“It is a very genuine cultural thing and it is our
biggest asset, frankly.”

insuranceNEWS

February/March 2019

53

Mr McLardy believes clients’ resulting faith in the
brand is opening up opportunities in other areas.
Aligned businesses include McLardy McShane
Financial Services, mortgages and equipment finance,
and premium funding operation Victory Funding.
“We are trying to build ancillary businesses
to complement the businesses we have, to give us
additional potential income streams from our client
base,” Mr McLardy says. “We think that clients like
dealing with us and our brand.
“Our culture and giving back to community is all
very genuine, and our clients like that.
“So we think the trust that we are building in our
brand means that we can look to these other income
streams. People know we are a credible company with
a credible offering.”
Mr McLardy sees a trend in SMEs looking for direct
insurance offerings, and the company is aiming to tap
into that.
However, he is clear that this needs to be approached
with a degree of caution.
“We are exploring our online options but we are
very conscious of getting that right. We have got to be
careful not to cross over with our existing distribution
channels. We don’t want to compete with ourselves.
“But as we know, a lot of that bottom end of the
SME market is moving to online, and if we are not
competitive and have an offering, then we are going to
lose those clients. We are working on that.”
Mr McLardy believes that despite a shift to direct,
people still like to know who they are dealing with.
“For smaller businesses like ours that is our
biggest advantage. The customers know who they are
dealing with and there is trust and credibility in that
relationship.
“I think that is the most valuable thing. Even as
technology advances, that will still be something that
we can use to our advantage.
“But we are going to need to be good at online and
communicating what our values and culture are.”
Following the Hayne royal commission’s final
report, change may be coming for brokers and the way
they are remunerated.
Mr McLardy is open to different ways of doing
things, but warns against designing a system around a
relatively small number of discrepancies.
“My big issue with a lot of the reporting around the
royal commission is the sensationalist aspect of it.
“The fundamentals of our industry are that the vast
majority of all transactions are handled with credibility
and authenticity, giving good value to customer and
supplier.

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February/March 2019

“And there is a lot of goodwill in our business.
There’s a lot of claims that insurers pay that technically
they don’t need to pay but they do for the goodwill of
long-term clients. These things don’t get reported.
“For every poor instance that gets reported, there
are probably 100 instances where insurance companies
or brokers have gone out of their way to support a client.
“We have got to be careful not to build a system to
eliminate what is a minor part of the business. That is
not underplaying how important it is that we actually
eliminate all those [problematic] transactions, but
we can’t build a whole system to that because it will
undermine all the other great things that are being
done.”
If changes are made to broker commissions, then it
must be done over a reasonable period of time, he says.
“Businesses need to be given time to adjust their
systems. To come in with a sledgehammer to kill an ant
is the wrong way to approach it. But we all understand
there are issues that need to be dealt with.”
Mr McLardy sees the market hardening at present,
but says it is only the extremes that cause issues.
It is in those cases that broker expertise and
relationships really come to the fore, he says.
“It is very difficult to explain to a client why his
premium one year is $20,000 and the next year it is
$80,000, and they haven’t changed their business at all.
“Clients can get very suspicious, and if I was in their
shoes I would be as well. We have to try and explain
market forces to them, and it is a real test of a broker’s
ability.”
Mr McLardy says talking to the client early is vital.
“A lot of the skill in broking is to forewarn your client.
Don’t arrive on renewal date saying look it’s up 150%
– part of the art of broking is to educate your client
along the way to that so when that time arrives it’s not
a surprise.
“It is about managing the client’s expectations on
the way through those markets.
“In certain areas there are some pretty extreme
cases coming out and things are getting worse. “We
have had a couple of clients we’ve had some difficulty
even placing in the market.”
Even in these changing times, Mr McLardy tries not
to look to far ahead for his business. While the growth,
and the focus on “good people”, continues, he’s happy.
“We are not too futuristic. We are adding new
things and we are growing strongly still,” he says. “At
the moment we are comfortable we are gathering good
people, under a good brand, with a good culture. For
the next couple of years it will be more of the same.” 0

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Loyal to a fault
If shopping around saves them money, why do
so many insurance consumers stay put?
By Benjamin Levy

56

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Choice is scathing of the industry’s
efforts to help consumers shop around,
calling it anti-consumerist. Policy and
Campaigns Adviser Patrick Veyret says it is
“bizarre” that insurers don’t want to disclose
how much premiums have changed.
Consumer groups want the Australian
industry to follow the example of the United
Kingdom, where the Financial Conduct
Authority has made it mandatory for
insurers to display last year’s premium on
renewal notices. Switching increased by 1020% as a result.

I

t has become a familiar complaint among
consumer advocates: sucked in by an
attractive 12-month discount, customers
sign up for an insurance policy only to be
slugged with a significant price increase at
renewal time.
The insurance industry has copped a fair
amount of criticism for this from the public,
Senate inquiries and – more controversially
– the New South Wales Emergency Services
Levy Insurance Monitor Allan Fels [see
accompanying article].
Yet despite the criticism, people are not
voting with their feet and shopping around.
A report by researcher Roy Morgan last year
shows more than 77% of general insurance
policies are renewed with the same insurer
without the consumer approaching other
companies. That is down only a couple of
points from 79.3% five years ago.
There are two overarching perspectives
on why this is the case, and the people
voicing them line up in predictably opposing
camps.
On one side is the industry, led by the
Insurance Council of Australia (ICA), which
believes customers are satisfied with the
service they receive and don’t want to
switch insurers. Besides that, the evidence
that renewals are always higher because of
an “acquisition discount” is inconsistent.
On the other side are consumer groups,
which believe customers are held hostage
by an industry that is trying to make it
impossible to compare this year’s premium
with last year’s.
Consumer advocates Choice and the
Consumer Action Law Centre are pushing
for insurers to display – or be forced to
display – premium changes on renewal
notices.

But ICA warns it would be misguided to
apply the experiences of the British market
or the expectations of the British regulator
in an Australian context.
Spokesman Campbell Fuller says the
proliferation of price comparison websites
in the UK has led to the creation of “vanilla
products” in many segments, with product
differentiation much narrower.
The major Australian insurers have long
resisted getting involved with comparison
sites, pointing to the UK experience where
price is the major factor in a buying
decision. In Australia there is greater variety
in the features of personal lines policies,
and insurers maintain that comparison
sites force the focus on to price rather than
suitability.
But while ICA celebrates Australia’s
product and value differentiation, Choice
and the Consumer Action Law Centre
believe it also drives consumers’ reluctance
to switch insurers.
Consumer Action Law Centre Chief
Executive Gerard Brody says there is no
standardised cover for motor or house
insurance, and the differences between
policies are too complex for people to
understand.
Mr Veyret says the differences between
policies are often contained in complicated
product disclosure statements (PDS). “There
should be standardised definitions across
policies so consumers can be sure what is
covered,” he tells Insurance News.
Consumer groups believe displaying the
previous year’s premium on renewal notices
would help consumers compare different
policies and encourage switching.
Roy Morgan Industry Communications
Director Norman Morris agrees it is difficult
for people to understand different conditions
across policies when shopping around. It is

hard to judge which is a better policy based
on more than premiums alone, especially
because consumers receive a whole book of
conditions and disclosure documentation.
But consumers can demand a better deal
with their current insurer, leaving them no
worse off, Mr Morris says.
Mr Fuller says the industry has tried for
many years to address the issue of hard-tounderstand PDS documents. ICA’s Effective
Disclosure Taskforce has commissioned
research on how to better inform consumers
at the point of sale. But it is a complex and
long-running piece of work.
The Consumer Action Law Centre is on a
crusade to stop the practice of discounting for
new customers and increasing charges for
renewing ones. On this issue, the insurance
industry is one of many in its sights.
“It’s a complex product you’re buying,
and the pricing is a challenge to understand,”
Mr Brody says. “The incentive on suppliers
is to price strategically, and one way to do
that is to discount upfront, knowing people
are less likely to switch down the track, and
slowly increase the price.”
ICA says offering price discounts to new
consumers is a legitimate business strategy
in many industries, and it helps people afford
insurance. “That’s hardly detrimental,” Mr
Fuller says.
It believes customers stick with insurers
because they are happy and have positive
experiences at claims time. The Roy Morgan
research seems to back this up: only 4.6% of
customers opted to change insurers over the
past five years, compared with 5.8% in 2013.
Satisfaction with general insurers is
closely associated with higher levels of
loyalty. The top performers for loyalty also
have above-average satisfaction levels, Mr
Morris says.
Given high levels of satisfaction, Mr
Fuller is surprised the Roy Morgan figure for
policies automatically renewed (77%) isn’t
higher.
Yet a customer survey conducted by
Choice at the start of the Hayne royal
commission showed the most common
problem identified in general insurance
is a lack of loyalty to customers. Choice
says respondents complained of annual
premium rises.
“It’s a perverse retention strategy that
they’re not rewarding people for staying
longer,” Mr Veyret says. “Loyalty should

insuranceNEWS

February/March 2019

57

be rewarded with cheaper premiums and
discounts.”
Mr Veyret and Mr Brody also believe
people don’t shop around for policies
because they are time-poor. Mr Brody says
there is a “behavioural bias” against action,
so people stay with their provider.
But it is a generalisation to say all insurers
are unappreciative of their customers.
An IAG spokesman told Insurance News
the group already provides annual premium
comparisons on policy documents.
It also provides loyalty discounts based
on the number of years a customer has been
with it and the number of policies they hold.
For example, a customer with IAG subsidiary
NRMA Insurance for 3-4 consecutive years,
holding two policies, can receive a 7.5%
loyalty discount.
It is also committed to helping customers
understand what they’re covered for,
the spokesman says. IAG created a single
Australian division last year with a focus on
customer-centricity.

Suncorp’s Marketplace strategy also
puts customers front and centre, while QBE
recently undertook a staffing restructure
aiming to make it easier for customers to
do business. A QBE spokesman says it is
working to enhance its customer experience
and loyalty proposition.
KPMG Insurance Partner Scott Guse told
Insurance News all insurers are under cost
pressure, and customer focus has never been
more important. The royal commission,
he says, has forced insurers to look more
closely at how they treat customers.
But this is not enough for the consumer
groups. Choice and the Consumer Action
Law Centre want a price comparison website
– an idea repeatedly knocked back by key
industry players who say price should not
be the sole focus when it comes to buying
personal lines insurance.
Mr Fuller says guidance from the
industry and the Australian Securities and
Investments Commission’s MoneySmart
program is that shopping around on price

alone is unlikely to deliver the right policy
for individual circumstances, and many
people are hearing that message.
But Mr Veyret says there is “no merit
to ICA’s arguments against a comparison
website”.
The Government continues to consider
many of these issues. It recently asked
for submissions on a discussion paper
concerning disclosure in general insurance.
In the highly competitive personal lines
field, the drive to attract more customers
is a complex issue, and while retention of
established customers has always been
important, insurers are increasingly
devising new marketing strategies to retain
customers by understanding and even
anticipating their changing individual
needs.
Despite the differences of opinion on the
so-called loyalty tax, and even whether it
truly exists anymore, there is agreement on
one thing: everybody wants more informed
– and adequately protected – consumers. 0

Batting on: Allan Fels’ wayward campaign
In his role as the monitor overseeing
insurers’ adherence to the aborted NSW
Emergency Services Levy reforms – and then
their performance in returning to the previous
arrangement – Professor Allan Fels has
adopted the colourful phrase “loyalty tax”.
A former chairman of the Australian
Competition and Consumer Commission and
a long-time critic of the insurance industry,
Professor Fels featured as the cover story in
the December edition of Insurance News.
Now he has picked a fight with insurers
which is beginning to resemble a test cricket
match in its intensity.
Professor Fels opened the bowling late
in November with a claim in his quarterly
monitor’s report that personal lines insurers in
NSW were imposing a “loyalty tax” on longterm policyholders.
Using data compulsorily obtained from the
insurers, he said the average base premium
for renewals in NSW is 27% higher than for
new policies.
But industry sources told Insurance News
the data they provide does not distinguish
between renewals and new business, and
that this had been compared with the severely
limited number of quotes available from online
comparators.
The Insurance Council of Australia (ICA)
initially let the criticism go through to the

58

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February/March 2019

keeper, saying the monitor’s office hadn’t
shared the research, and anyway, discounts
to new customers to attract new business is
“competition in action”.
Professor Fels then demanded additional
comparative pricing data for motor and
commercial policies, as well as disclosure of
fees paid to intermediaries, and this time ICA
came out swinging for the boundary.
Accusing Professor Fels of “acting outside
his powers” and failing to listen to industry
concerns, it called on NSW Treasurer Dominic
Perrottet to force him to withdraw the demand.
“The information which the monitor can
require insurance companies to provide
is limited to information about emergency
services levy reform,” says a letter sent to the
minister and seen by Insurance News.
ICA then filed a forthright submission
along similar lines to Professor Fels’ “loyalty
tax” discussion document.
In January Deputy Monitor David Cousins
stepped in to bat for Professor Fels, saying
ICA’s submission “makes a number of factually
inaccurate points” and uses “seriously
deficient” methodology.
In brief, the response accepts the insurers’
line that the monitor’s role is so widely
defined that it can be pretty much whatever
the monitor deems it to be by having regard
“to the effectiveness of competition in the

War of words: Allan Fels has criticised
insurers’ pricing practices

property insurance industry as it is relevant
in determining the most appropriate way to
implement its monitoring program”.
Professor Cousins says the monitor is not
obligated to consult on how data provided
by insurers is analysed and has offered a
consultation avenue on the “loyalty tax” issue
by releasing the discussion paper.
The monitor’s role – which was designed
to support an initiative that never happened –
was originally scheduled to end at the end of
December. It will now continue until June 30
next year. Plenty of time to fit in another innings.

Levy
failures
The NSW election
presents another
barrier to emergency
service funding reform
By Wendy Pugh

N

ew South Wales Treasurer Dominic Perrottet
channelled former prime minister Tony Abbott
when he declared a proposal to fund fire and
emergency services through a property-based levy was
“dead, buried and cremated”.
Mr Perrottet was speaking about the ditched model
that had been scheduled to start in 2017, but he left
the way open for change by insisting the Government
remained “completely committed to the principle of
moving away from a levy on insurance”.
Almost two years later and the political will to act on
that commitment has faded before a March 23 election,
potentially closing the reform window for years and
leaving NSW as the last state to fund emergency services
with a levy on home insurance.
“The NSW Government has no plans to introduce
a revised fire and emergency services levy in the next
term of government,” it said last month in response to
a Legislative Council committee report that examined
what went wrong last time and how to prevent pitfalls
if another reform attempt is made.
The response rejects committee suggestions that
the Coalition Government, led by Gladys Berejiklian, “is
likely to introduce a new property-based levy should it
be re-elected” for a third term.
University of Sydney professor Rodney Smith says
the Coalition is most likely to be returned with a reduced
majority or as part of a minority government formed
with independents, leaving it less political capital to
revisit a policy that caused grief the first time around.
“You don’t get the sense this is something they are
pining to put back on the table,” Professor Smith tells
Insurance News. “I think it is something they tried to
do, mucked it up, and I suspect that might be it for a
while. They have a lot on their agenda already that they
need to move on, in terms of infrastructure projects
in particular, and I suspect the scope for being too
adventurous in other policy areas is fairly limited.”

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Professor Smith says Labor faces a difficult task to
win power, and would anyway be unlikely to pursue
levy reform.
The Berejiklian Government halted the 2017 plan
in a panic after some businesses and landowners used
a levy calculator and found the switch to the proposed
new model would make their payments soar.
The Insurance Council of Australia (ICA) estimates
the backflip, announced just weeks before the change
was due, cost the industry about $40 million. In addition,
the Government reimbursed local councils about $11.5
million for work undertaken.
The Legislative Council inquiry describes the
failed implementation as a poor public policy decision
undertaken without adequate understanding of the
issue’s complexities or the proposed reform’s unequal
impacts across the community.
“I don’t really care how it is levied as long as there
is an even playing field,” committee chairman Robert
Borsak, from the Shooters, Fishers and Farmers Party,
tells Insurance News. “What I don’t want to see is people
paying extra money because of artificial inflation on
their property values.”
The failed switch contrasts with the relatively
smooth introduction of a property levy in Victoria in
2013. The Victorian move was recommended by the
royal commission on the Black Saturday bushfires
of 2009, and the state based its new levy system
on improved property values, which have a closer
alignment with sums insured.
NSW council rates are based on unimproved land
values. Using that method for a fire and emergency
services levy (FESL) would mean the charge soared for
some people and failed to take account of variations
in the size and nature of buildings, the parliamentary
committee inquiry heard.

Hard-hit groups would have included seaboardbased, cash-poor owner-occupiers, some rural
landholders, and industrial and commercial property
owners in high-land-value areas, such as those zoned
for high-density residential development.
In a submission to the committee the Government
says the NSW Valuer-General does not estimate
improved land values and creating such a database
is estimated to have a one-off $140 million cost and
annual charges of $30 million. Waiting for that change
would have delayed the FESL by up to five years.
The valuation issue also came up several years ago
as part of a NSW Independent Pricing and Regulatory
Tribunal (IPART) review of the local government rating
system.

The Legislative Council committee says no future
NSW government should implement an FESL unless
it considers a range of options to improve fairness.
These include: use of capital-improved value of land;
differential levy rates, fixed charges, discounts and caps;
better-aligned land classifications between councils
and the FESL; and the inclusion of motor vehicles.
NSW Treasury should work to minimise the
number of “known unknowns” and conduct a full and
transparent re-modelling of any new FESL, it says.
The committee recommendations have been well
received by insurers, which have not abandoned their
push for change, although neither side of politics is
expressing a commitment to reform.

A draft report recommends councils be allowed to
use capital-improved value, that a valuation base date
for an emergency service property levy and council
rates should be aligned, and information collection
could be phased in “over a period time, such as five
years”.
“The NSW Government should levy the emergency
services property levy on a capital-improved-value
basis when capital-improved value data becomes
available state-wide,” it says.
This has also languished in the too-hard basket,
with the IPART draft document published in August
2016 and the yet-to-be-released final report delivered to
the Government later that year.
“It is a large and complex report and the government
is not rushing into a response,” a spokesman for Local
Government Minister Gabrielle Upton says.
“We are committed to ensuring local councils are
sustainable and can deliver improved services, and that
is why the report was commissioned.”

insuranceNEWS

February/March 2019

61

highest proportion of taxes on household insurance
policies in Australia; the emergency services levy
typically adds 21% to household premiums and 45% to
small business premiums, ICA estimates.

U-turn: how we covered the issue in 2017

“While we were disappointed with the deferral of
the reforms and the associated impacts, we continue to
support any steps that can be taken by the Government
to move to a fairer system for customers, such as
through a broad-based property levy,” Matthew
Bennett, Executive Manager at IAG-owned NRMA
Insurance, says.
“We hope the NSW Government may consider
options for reform in the future.”
An ICA submission to the parliamentary committee
says if a property-based levy cannot be made to operate
equitably, alternatives could include providing funds
from state consolidated revenue.

Tasmania is reviewing its emergency services
hybrid funding model, which uses a property-based
levy for households and a tax imposed on commercial
and motor vehicle insurance.

A spokesman for Mr Perrottet tells Insurance
News the Government is committed to maintaining
an equitable and efficient funding model for fire and
emergency services workers, and the withdrawn FESL
model was based on the best information available at
the time.
“The [committee’s] report makes a number of
recommendations, which the Government will consider
as part of its longer-term plan to improve the fairness
and efficiency of the NSW tax system,” he says.
The reform’s delay means NSW customers pay the

insuranceNEWS

“When you start to add up all this expenditure and
increases in fire brigade budgets, you can’t see any
future for the levy except one where it continues to
rise,” Mr Scofield says.
The case for abolishing insurance statutory
contributions to the fire services in favour of a broadbased tax has been made in numerous reviews and
inquiries, including Productivity Commission reports
and the Henry tax review.

A fixed-rate levy on policies liable for the emergency
services levy would also be preferable to current
arrangements, it says.

62

Allianz Corporate Affairs General Manager
Nicholas Scofield says funding requirements are
increasing, putting further pressure on policyholders.
The latest NSW budget update includes new workers’
compensation measures to be funded through the levy,
plus costs from aircraft purchases, while other potential
expenses loom.

February/March 2019

“ICA and its members are disappointed the
Berejiklian Government will not reform the unfair and
inequitable emergency services levy for the foreseeable
future,” spokesman Campbell Fuller says.
“Changing the emergency services levy from an
impost on insurance customers to a more efficient,
broader-based charge would significantly benefit the
NSW economy and insured households and businesses.
It would reduce non-insurance and underinsurance
and lower community reliance on government support
after natural disasters.”
But despite the arguments, a reform described as
long overdue faces further delay. 0

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t $US16.5 billion, the Camp fire that torched the
Californian town of Paradise in November was
the world’s costliest natural disaster last year,
capping another horrific season of calamities for the
United States.
New figures from Munich Re show the world’s three
most financially damaging catastrophes in 2018 were in
the US, which was hit by wildfires and hurricanes. The
total cost: $US46.5 billion.
Hurricane Michael, the fourth-strongest storm on
record in the US, ranks second – costing $US16 billion
– in the German reinsurer’s top five. In third place is
another Atlantic hurricane, Florence, at $US14 billion.
Typhoon Jebi, which mainly hit Japan in September,
is fourth with losses of $US12.5 billion, followed by
floods and subsequent landslides in Japan two months
earlier, leaving a damage bill of $US9.5 billion.
In terms of insured losses, the Camp fire tops the
chart at $US12.5 billion, followed by Michael on $US10
billion and Jebi on $US9 billion.
The deadliest event was the quake and tsunami in
September that killed more than 2100 people around the
Indonesian city of Palu, costing at least $US1.5 billion.
Asia was the worst-affected continent last year,
accounting for 43% of 850 natural disasters and 74% of
fatalities. The region suffered an overall loss of $US59
billion, of which $US18 billion was insured – accounting
for 24% of global insurance payouts.

Paradise
lost
Californian wildfires
dominated another
tough year for the US
insurance industry,
even as natural disaster
losses fell worldwide
By Bernice Han
64

insuranceNEWS

February/March 2019

December’s Sydney hailstorm was one of about
40 natural disasters to strike the Oceania region. The
event has so far cost more than $926 million, with the
Insurance Council of Australia saying more claims are
expected.
Munich Re says global losses last year declined by
more than half to $US160 billion from $US350 billion in
2017, when a troika of large hurricanes hit the US and
some of its neighbours, leaving affected regions with
historic damages.
The insurance industry shouldered about half of
last year’s damage bill, arising mainly from a series
of billion-dollar events in Japan and other Asia-Pacific
countries in the second half.
While significantly lower than 2017, last year’s
catastrophe bill still ranks among the worst on record,
Munich Re says.
Overall losses of $US160 billion were above the
inflation-adjusted average of $US140 billion for the past
30 years. And insurer payouts were higher than the 30year average of $US41 billion.
“When compared with the record losses of the
previous year… the indications at the start of 2018
were that it would be a more moderate year,” Munich
Re Head of NatCatService Climate and Public Sector
Business Petra Low says.
“However, the second half of the year saw an

Paul Oâ&#x20AC;&#x2122;Leary

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Morgan Long

Paul Lynam

Deadly: more than 2100 people were killed by a tsunami in Palu, Indonesia. Credit: Reuters

accumulation of billion-dollar losses from floods,
tropical cyclones in the US and Japan, wildfires and
earthquakes.
“[Last year] therefore ranks among the 10 costliest
disaster years in terms of overall losses, and was the
fourth-costliest year since 1980 for the insurance
industry.”
Munich Re says 29 natural disasters resulted in
individual losses of $US1 billion or more. US and AsiaPacific storms and the California wildfires left losses
of $US57 billion and $US24 billion respectively. About
$US29 billion of storm-linked damages were insured,
while the figure for wildfires was roughly $US18 billion.
The Camp fire and other major blazes in California
amounted to that state’s worst wildfire season for the
second year running, Munich Re says.
And fire risk is expected to escalate, fuelled in part
by a warming climate, meaning insurers must reassess
their risk models.
“Our data shows the losses from wildfires in
California have risen dramatically in recent years,”
Munich Re Head of Climate and Geosciences Ernst
Rauch says.
“At the same time, we have experienced a significant
increase in hot, dry summers, which has been a major
factor in the formation of wildfires. Many scientists
see a link between these developments and advancing
climate change.
“This is compounded by man-made factors such as
burgeoning settlements in areas close to forests at risk

66

insuranceNEWS

February/March 2019

from wildfire. The casualties and losses are immense,
and measures to prevent fires and damage are vital.
Insurers also need to take account of the rising losses in
their risk management and pricing.”
According to Aon, natural disasters led to $US225
billion in economic losses last year, with about $US90
billion insured. The Camp fire was the costliest insured
event at $US12 billion.
Willis Towers Watson estimates the California
wildfires cost insurers $US15-$US17 billion. The fires
and other major natural catastrophes combined to cost
$US71.5 billion in insured losses last year, less than half
2017’s figure, but marginally above the average for the
previous eight years.
Preliminary estimates from Swiss Re show natural
catastrophes cost the global economy $US146 billion,
down 57% on 2017, while insured losses fell 50% to
$US71 billion.
Nevertheless, last year was the fourth most
expensive for the insurance industry, according to Swiss
Re’s records. Extreme weather was the chief villain.
“Like [2017], losses from the 2018 series of events
highlight the increasing vulnerability of the evergrowing concentration of humans and property values
on coastlines and in the urban-wildlife interface,” the
reinsurer says.
“The very presence of human and property assets in
areas such as these means extreme weather conditions
can quickly turn into catastrophe events in terms of
losses inflicted.” 0

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New reality bites
The virtual world is expanding, creating
risks and opportunities for insurers
By Andy Swales

I

n the Japanese city of Nishio last year, an
85-year-old woman was fatally hit by a
car while crossing the street – an awfully
common occurrence, unremarkable even.
However, she may also have been the
victim of a peculiar recent trend: local
media reported how the driver was arrested
after admitting she was playing Pokemon Go
when the crash happened.
The game, played via a phone app, is an
example of augmented reality: players hunt
for virtual creatures in real-world locations.
It’s addictive stuff; distracting, too.
After its release in 2016 there followed a
wave of incidents in which players suffered
or caused injuries as – eyes locked on

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screens – they stumbled around pursuing
virtual critters, often paying little regard to
the very real dangers around them.
In fact, augmented reality is one of the
less-immersive “new realities” that have
applications from gaming to business,
education and healthcare. And, as a recent
report from Lloyd’s notes, the technology
should be of great interest to insurers.
“Increasing uptake by businesses,
and the new risks the technologies pose
to them and society in general, represent
a potentially substantial new market for
insurers, [and] a means by which they can
improve their own products and services,”
the paper notes.

New realities is a term coined by
futurist and Lloyd’s report co-author Amelia
Kallman. It includes augmented reality (AR),
virtual reality (VR) and mixed reality (MR)
(see Fake Views panel).

include depression, isolation, reclusive
behaviour and even suicide and violence.

“As these technologies become more
widely adopted, new risks to human health
and data security are emerging,” the report
says.

There may also be issues around digital
consent.

“KPMG estimates these risks could cost
business £20 billion annually… insurers
could develop innovative products and
services to help businesses manage these
risks.”
The report outlines a host of human and
data risks in the ever-growing “metaverse”.
The former may include physical
dangers as users become “disoriented in
their real-world environments and injure
themselves. Users may also become so
used to making consequence-free actions
in the metaverse – walking into traffic, for
example – they could become desensitised to
potentially fatal real-world risks.”
As we have noted, these dangers are
already manifest.
In 2017 a boy in Perth reportedly lost
sight in one eye after falling while playing
Pokemon Go, and in 2016 a teenager
allegedly drove into a Melbourne school
building while playing the same game.
Lloyd’s also notes that the instruction
manual for the Oculus Rift VR headset
warns an estimated one in 4000 users may
experience severe dizziness, seizures, eye or
muscle twitching, or blackouts triggered by
light flashes or patterns.
The report also flags mental risks.
“Because these are relatively new
technologies, there are currently no
available long-term studies on their physical
and mental impacts.
“Side effects vary dramatically from
person to person, but some of those
associated with immersive gaming may

“Employers are going to have to consider
the impacts of physical and mental risks
from an employer’s liability perspective.”

“Laws and legal jurisdiction in
the metaverse, which has no physical
boundaries or borders, have not yet been
developed. Liability is unclear and has yet to
be broadly tested in law.”
Data risks may arise if financial and
personal information or even “biometric and
emotional data” become more susceptible to
hacking.
“The metaverse is increasing the number
of vulnerable places that can be attacked.
However, underlying legacy systems remain
the most vulnerable to data and cyber
breaches. This may change as metaverse
platforms become more popularised.”
To seize on new policy opportunities
and possible process improvements,
insurers are urged to “immerse themselves
in this new sector, to stay on top of new
developments, anticipate and react to new
risks and invest in innovation and new
product development”.
“Insurers should work with software
and hardware manufacturers to support the
responsible development of new realities
technology and solutions,” the report says.
“Establish partnerships with companies
that are developing new realities products.
This will help insurers understand future
distribution channels and mean they can
work closely with their customers to develop
relevant products and services.”
An early example of new product
development is Seguro Go, a Mexican policy
covering accidents, injuries and death for
Pokemon Go gamers.
The industry must keep pace with
developments as the technology creates

“entirely new worlds… that will be
vulnerable to cyber risks. The rapid
development of digital technology is already
having an impact on risk exposure, so
insurers must ensure they fully understand
the risks, and their potential aggregation,
and price policies accordingly.”
The report says new realities technology
can also bring process improvements across
the insurance industry.
On the marketing side, new realities can
add “emotional engagement” for customers.
For example, Allianz has created an AR app
to show the potential for accidents in the
home.
“When users enter a specially designed
home, they can use a tablet to uncover
hidden dangers. For instance, when one
views a toaster through the app, an AR
overlay shows sparks and smoke.”
VR training exercises could help
commercial clients’ staff reduce workplace
accident risks, and insurance workers can
also benefit: Farmers Insurance in the US
developed a VR app for claims staff that can
generate up to 500 possible property damage
scenarios and customer interactions.
In claims handling, AR and MR headsets
may aid property damage assessments,
“making it easy to take measurements and
overlay information or previous images to
identify damaged portions of a building”.
Underwriters could examine assets without
needing to be on site and, likewise, brokers
may “move around” clients’ properties
remotely.
Investment
officers
could
“walk
the virtual streets” of their investment
portfolios, making decisions supported by a
new perspective on their allocation.
Lloyd’s says the technology is “opening
up a new world of commercial and sensory
possibility for developers, suppliers, users
and insurers”. 0

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69

Metamorphosis

Fake views
Augmented reality overlays digital 2D
content onto physical objects, people and
environments. In Pokemon Go, creatures
appear on a user’s phone or tablet screen,
interacting with the real-world image behind
them. Other examples include Snapchat and
Instagram filters.
Virtual reality requires a headset that
“completely immerses users’ senses of
sight and hearing into an artificial, 3D, digital
environment. The stereoscopic images trick
the brain into believing the simulation exists
tangibly in the spatial landscape of a user,
and images instantly adjust based on head
position and movement, as they would in real
life.”
More senses are being added to the
mix. Recent start-up Sensiks is developing
Sensory Reality Pods – personal cabins
that provide a VR experience encapsulating
temperature, smell, taste, airflow and light

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frequency “simulated in sync with content”.
Mixed
reality
involves
interactive
360-degree, 3D imagery such as holograms
overlaid onto real environments.
For example, Microsoft’s HoloLens
sensors and headsets can “holoport” a fullsize and interactive hologram of a person to
another location in real time.
Mixed reality is “more inclusive than
VR because you can still see your natural
environment and the people around you, only
with additional layers of holographic digital
content that is sharable and interactive”, the
Lloyd’s report says. These “differentiating
features… are key to why it is likely to become
the most important of the new realities”.
The report says underwriters may one day
“holoport around scenarios, watching as their
portfolio is subjected to simulated events.
This would highlight potential risks and
opportunities where clients might share risks
or be impacted by one-another’s losses. This
could be useful to identify supply chain risks.”

Lloyd’s report says it is estimated
this year at least 20% of large
businesses will have adopted new
realities.
It notes AR and VR start-ups
raised more than $US3.6 billion in 12
months to the end of quarter one last
year, with half concentrated in just five
companies.
“Future market size estimates
range from $108 billion by 2020 to
$US1.3 trillion by 2035. Currently,
most new realities technology is being
developed for consumer markets
– video games, for example – but
there are an increasing number of
applications aimed at the commercial
sector.”
A host of potential applications
exist in the “metaverse” – the “virtual
white space that acts as a blank
canvas where people can interact with
computer-generated
environments,
objects and scenarios, as well as other
users”.
These may include conducting
medical
operations
remotely,
simulating disaster scenarios for
engineering companies and creating
“virtual
hospitality
boxes”
for
entertainment events.
“The new realities and the
metaverse will create new markets,
transforming entire sectors and the
way they do business,” the report
says.
In sales and marketing the
technology may be used to create
virtual office branches and new
kinds of advertising campaigns and
services.
It could decentralise the workforce,
allowing staff to “work anywhere by
switching their connecting device to
‘in the office’ ”.
The metaverse could also make
for a more inclusive society, making
“life easier for millions of people
who experience mobility challenges.
Employers
could
harness
the
technology to ensure all employees
have the same access, regardless of
their physical condition.”

Advertorial

Insurance broking commissions –
Lessons from the Royal Commission
By Andrew Sharpe
In the lead-up to the Final Report of the Financial
Services Royal Commission, one simple question
was occupying the minds of many in the general
insurance sector: would Commissioner Hayne
recommend that general insurance broker
commissions be banned?
When the Final Report was handed down, the
Commissioner did not recommend the abolition, or
phasing out, of commissions for general insurance
brokers. He recommended that the general
insurance exception to the prohibition on conflicted
remuneration be reviewed in three years’ time with
a report to be concluded by the end of 2022.
But this was not a reprieve. It was an opportunity
for general insurance brokers to demonstrate that
the existing exemption can operate in a manner
which enhances (rather than detracts from)
consumer outcomes.
The Final Report
In the Final Report, Commissioner Hayne has
provided the industry with a series of indications as
to the objections which it will need to meet if it is
to successfully advocate for a continuation of the
exemption on conflicted remuneration.
a) Underlying Principles
Commissioner Hayne has set out a strong
argument that, at the level of principal and policy,
exceptions to the ban on conflicted remuneration
should be eliminated from the financial services
sector.
That argument begins with the identification of
six norms of conduct: obey the law; do not mislead
or deceive; act fairly; provide services that are fit for
purpose; deliver services with reasonable care and
skill; and – critically – when acting for another, act
in the best interests of that other.
It continues with the identification of a series
of six “general rules” which those norms are said
to support or, in some cases, entail. Two of those
general rules are directly on point:
• intermediaries should act only on behalf of,
and in the interests of, the party who pays the
intermediary;
• exceptions to the ban on conflicted
remuneration should be eliminated.
According to Commissioner Hayne, the very
hinge about which the conflicted remuneration
provisions turn is that the payment “could
reasonably be expected to influence the choice of
financial product recommended to retail clients”.
The starting presumption will be that commissions
have the propensity to detract from consumer
outcomes.

b) Simplification
The financial laws should be simplified to draw
explicit connections between the particular rules
that are made and the fundamental norms to which
those rules give effect. This objective itself calls for
the removal of exceptions and carve-outs wherever
possible. Commissioner Hayne expressly identifies
grandfathered commissions in this context.
c) Unintended Consequences
Advocacy by reference to high level claims of
“unintended consequences” are unlikely to be
successful. If the exception to the rules prohibiting
conflicted remuneration is to be preserved, the
exception must be “closely and cogently justified”
by identifying, and empirically supporting, the
precise nature and the extent of the consequences
that are said to follow from the removal of the
exemption.
d) Practical operation in other contexts
While no evidence was led in the Royal
Commission as to any actual issues with
commissions paid to general insurance brokers,
the Commission observed actual conflicted
behaviours by others including mortgage brokers,
life brokers and motor dealers. In those contexts,
“all too often advisers have preferred their own
interests against the interests over clients, despite
having an obligation to pursue the best interests
of their clients”. These findings heighten the need
for general insurance brokers to be able to point
to reasons to differentiate themselves from other
financial service advisers.

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e) Proving Value
In the context of mortgage brokers, the
Commissioner considered the submissions put
on behalf of mortgage brokers as to the positive
effect of brokers on competition. In the absence of
any detailed studies to prove the pro-competitive
effects of mortgage brokers (and reviews by ASIC
and the ACCC which raised questions as to the
actual extent of such effects) the Commission
placed little weight on those submissions.
Readying for the review
My own observation has been that, on the whole,
commission-based remuneration practices have
facilitated the distribution of insurance products
through advice-based broker channels which have
a real capacity to improve consumer outcomes
through:
• increasing competition for insurance products
including both price-based and non-price
based competition;
• encouraging the development of more
appropriate insurance products;
• improving the access of consumers to quality
product advice and claims advocacy services;

• enabling the development of technology,
education and technical resources which
reduce the cost of production and distribution
of insurance products and contribute to
heightened professionalism within the broking
industry.
Any broad-based removal of the current
exemption has the capacity to significantly affect
the take-up of broker services and erode these
benefits. It would run the risk of adversely affecting
net consumer welfare.
The insurance broking industry has a good story
to tell. The fact that the exemption has continued
to date is testament to the fact that the industry
has told that story well and the comparatively lower
extent of complaints and disputes in the sector.
However, in a new ‘post-Royal Commission’ world,
the shift to simplified financial services regulation
will present a greater challenge.
If the general insurance sector is to maintain
the existing exception to the ban on conflicted
remuneration, it will need to heed the above
warnings and:
1. carry out an inventory of existing conflicted
remuneration arrangements, consider the
potential for each such arrangement to
encourage behaviours inconsistent with the
six norms of conduct and self-regulate to
remove or modify any arrangements which
do not pass the tests laid down by the
Commissioner;
2. collect data and undertake studies to prove
and measure the benefits created by those
conflicted remuneration structures which are
assessed as contributing to positive consumer
outcomes;
3. increase the transparency of all conflicted
remuneration arrangements through more
stringent disclosure obligations in the
Insurance Brokers Code of Practice;
4. enhance the powers of the Code Compliance
Committee to impose sanctions to police
conduct which breaches any of the six
norms of conduct, especially where particular
conflicted remuneration arrangements might
be seen to be a factor in such conduct.
This review must take place both at the level of
the relevant industry bodies and in the boardrooms
of industry participants.
It requires individual brokers and insurers to heed
the clear messages from the Commission, focus
on consumer outcomes and ensure that their own
broker remuneration structures are consistent with
six norms of conduct and operate consistently to
promote the best interests of consumers.

Growing fast:
New Hollard brand
targets SMEs
Hollard has invested in a new brand aimed
at Australia’s huge SME market.
Hollard Commercial Insurance, or HCi
for short, will carry insurance products
that address the everyday risks small and
medium firms face.
The brand will combine Hollard Select
Brokers and Calibre, which was acquired in
2017, to form a single business. The Calibre
brand will be retired.
HCi products will be delivered via lowreferral electronic platforms to maximise
efficiencies in insurance placements for
intermediaries.
Richard Heilig, previously chief executive of Hollard’s commercial business, has
been named Chief Executive of the new
brand.
The timing is right for the launch, Hollard
Chief Executive Richard Enthoven says, as
the insurer looks to build on its success since
setting foot in Australia 20 years ago.
The insurer now writes more than $1
billion in gross written premium, achieving
the target a year ahead of schedule.
The hardening market is another
incentive behind the brand’s launch.

Connecting clients: Sparke Helmore’s Chris Wood

Global connections: Sparke Helmore
joins powerhouse alliance
Sparke Helmore Lawyers has become the
first Australian law firm to join Global
Insurance Law Connect (GILC).
Based in London, GILC has 14 members
from around the world including the US,
the UK, China, Brazil, France, Spain, India,
Switzerland and Norway.
The network was set up to service
growing demand from insurers and
reinsurers for specialist insurance legal
advice on a range of issues.
“We are delighted to be joining GILC,”
Chris Wood, National Practice Group Leader
for Commercial Insurance, tells Insurance
News.
“It makes a powerful statement about
the firm’s deep commitment to the insurance
sector as well as reinforcing our position as
one of the market leading insurance law
practices in Australia.
“This move gives Sparke Helmore the
ability to connect clients across the globe,
delivering smart solutions through the lens

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of leading thinking and a dedication to
innovation.”
Areas where GILC specialises include
cyber, energy, environment, financial lines,
fraud, construction, complex bodily injury
claims, marine, property and product
liability and recall.
Sparke Helmore’s Partner Gillian
Davidson will become a GILC board member
and represent Asia-Pacific.
“It’s an honour to be appointed to the
board of GILC and fast-track the firm’s
connection with the other member firms,”
Ms Davidson says.
“We have a great deal of knowledge and
expertise to contribute. I will be championing
a number of issues as a member of the board
including strategic and gender diversity.”
Sparke Helmore’s commercial insurance
group has 35 partners, 172 lawyers and 147
allied professionals in nine offices across the
country. More than half of the firm’s lawyers
work on insurance-related matters. 0

“HCi brings together into one dedicated,
focused team all of our commercial
offerings,” Mr Enthoven tells Insurance
News.
“We probably have a bigger market
share in the SME market than in personal
lines. It is a smaller market, but we will have
a very meaningful presence. We will be
positioned well to grow market share as that
market hardens.”
Hollard’s commercial operations write
$120 million in gross written premium and
the figure is on track to hit $200 million in
the next three years.
The insurer will continue to sell its SME
products through intermediaries.
And the market can expect to hear
more from Hollard, says Mr Enthoven,
who believes the insurer, now the seventh
largest, is on the right expansion path.
“Up until now we’ve been growing out of
the spotlight, and I think many people are a
bit surprised when they discover the extent
of our operations,” Mr Enthoven says.
“Over the past four years, our compound
annual growth rate has been about 35%,
well ahead of our nearest challengers and
the larger incumbents.
“We don’t envisage standing still – we
will continue to take market share.” 0

Out from the shadows
An executive development program aims to
empower a new wave of broking leaders
By Wendy Pugh

A

n accelerated leadership development
program for brokers will accept
its first intake early this year, in
a training collaboration between former
Suncorp Insurance chief executive Anthony
Day and motivational speaker and business
consultant Rowdy McLean.
The Eclipse Program aims to build
the capabilities of emerging talent in the
broking community and provide a platform
for organisations to meet growth goals,
filling a gap in the market identified by the
business executives.
Mr Day says the program evolved
from observing the benefits of training
and development opportunities in large
corporate environments. In contrast,
broking principals wanting to develop and
retain their best people have generally had
limited options for programs that address

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their specific needs.

while empowering individual participants.

“In talking to a number of brokers,
there isn’t much around for that next level
of leaders coming through, where they can
build their own leadership skills, get some
focused attention and deliver something
special,” he tells Insurance News.

“If you provide people with the right
support base and the ability to take time
out from what they are doing day to day, to
innovate and drive better results, then the
results are amazing,” Mr Day says.

Mr Day has a high profile in the insurance
industry after a career spanning more
than 30 years with local and international
insurers. Last year he established the
Elevate CEOs consultancy to mentor senior
executives.
At Suncorp he developed a program for
commercial insurance front-line staff with
Mr McLean, whose Play A Bigger Game
business has assisted many companies. That
program created an environment for teams
to devise innovative ideas and projects,

The broker scheme, launching as the
Eclipse Program “Time to Outshine”, offers
a similar concept and centres around
objectives of personal growth and the
delivery of projects that have a significant
benefit for businesses.
The four-month schedule aims to
quickly deliver results, and is structured
around rapid growth masterclasses in which
participants develop ideas and strategies.
Participants are supported by the
facilitators, and each is held accountable for
completing two rapid growth projects.

Mr Day and Mr McLean will oversee
the program and bring in guests to
lend expertise according to the projects
participants pursue.
They say the $20,000-per-person cost will
pay for itself, driving ideas and outcomes
to shake up business-as-usual approaches
and preventing the complacency that can
cause teams and organisations “to rust from
the inside out” without realising their full
potential.
Places will be allocated through an
application process, with 12 participants
expected for the first program, set to start
next quarter.
Mr Day says investment in the new
wave of leadership helps to retain staff,
who may otherwise see a ceiling on their
opportunities, and provides a pathway for
succession as principals look to the future of
their businesses.
“I have spoken to a number of brokers as
we went through… designing the concept,”
he says. “They are looking for the next level
of leaders, they are looking for succession
and they are looking to maximise their
profits.”
The Eclipse Program also taps into the
motivational and entrepreneurial energy
of Mr McLean, who has helped clients build
success-driven cultures. He has consulted
across a wide range of industries and
regularly addresses conferences and events.
Mr McLean established a communications business aged 24 and retired at
34 after his early success. He returned to the
corporate arena and has since worked with
companies including Tabcorp, Macquarie
Bank, International Game Technology,
Gloria Jean’s Coffee, Volvo, LJ Hooker real
estate and Suncorp.
He says businesses, whatever sector
they are in, experience many of the
same constraints affecting their ability to
capitalise on opportunities and achieve
exceptional results.
Enterprises often start a new year with
intentions to make changes and pursue
innovations, before finding that time has
passed and few of their plans are achieved.
“The next thing, it is December, and
everything is still the same, opportunities
still not exploited,” he tells Insurance News.
“The idea of this program is to change that
dynamic for those brokers that really want
to make this the breakout year.” 0

td00240 Ryno_Insurance News Ad_117x270mm_OL.indd 1

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February/March19/9/18
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UIG holds birthday bash
More than 100 guests and staff joined in birthday celebrations to mark
United Insurance Groupâ&#x20AC;&#x2122;s 10th year in business.
The cocktail party was held at the stylish Stolen Gem, one of Melbourneâ&#x20AC;&#x2122;s
famous rooftop terraces.
Senior representatives from the broking firmâ&#x20AC;&#x2122;s key industry partners
mingled and networked with authorised representatives, many of whom
had flown interstate for the occasion.
Director Anthony Zambelli and General Manager Trevor Howard led the
celebrations and thanked insurers and authorised representatives for their
support over the last 10 years.
Part of the Steadfast network, United Insurance Group has approximately
30 associated businesses involving more than 80 individual authorised
representatives in Victoria, Queensland and New South Wales.

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All Blacks a hit with AIG guests
AIG hosted New Zealand rugby teams over two
sessions in Sydney where invited guests and
employees got the chance to hear what makes
the all-conquering players tick.
Three members from the Black Ferns Sevens
shared how they strike a balance between
personal and professional responsibilities, and
prepare mentally for matches.
Guests at the event – organised by AIG’s Sydney
Women & Allies Employee Resource Group – also
heard how the team handles conflict and copes

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with being away from families for long periods.
In the other event, the All Blacks Sevens joined
employees and brokers in several rounds of
archery at Sydney Olympic Park after a gourmet
BBQ breakfast.
Three players later took part in a “shoot off” with
outside back Kurt Baker emerging victorious.
Guests were later presented with various All
Blacks prizes and photos with the players.
AIG is the official insurance sponsor of New
Zealand Rugby.

Sedgwick celebrates
new start
Claims administrator Sedgwick celebrated its local launch in
Sydney in November, after merging the Cunningham Lindsey
operations into its business.
Sedgwick Group President Mike Arbour from the US and
International Chief Executive Ian Muress from the UK were in
town for the event.
Both gave speeches to the 400 attendees, and new Australia
Chief Executive Diego Ascani also spoke to the crowd.
The combined group operates across 65 countries and has
more than 20,000 employees, including 1200 in Asia-Pacific.
The event was held at the O Bar and Dining.

insuranceNEWS

February/March 2019

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McLardy McShane charity
lunch marks decade
McLardy McShane’s 10th annual Reach Christmas
lunch was packed out, with 670 people attending.
The event has raised more than $1 million over
its existence, and proceeds for this event went
to youth organisations Reach Foundation, Irishbased Soar, and Boys to the Bush. Beyondblue
was also supported.

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Former Essendon player and coach James Hird
and AFL Hall of Fame Legend Kevin Sheedy were
special guests.
Mr Hird was still recovering from a serious cycling
accident but was determined to attend and
delivered an “inspiring” speech. The lunch was
held at Peninsula in Melbourne’s Docklands.

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Aussie icons invade
Insurance House
conference
Brokerage Insurance House celebrated its 35-year
anniversary in style at its annual conference in December. The
conference looked back at the history of the company, with a
Q&A with former managing director Wayne Hildebrand about
the history of Insurance House and its development from a
small office in Echuca.
Staff and management were inspired by eminent corporate
businesswoman Margaret Jackson, and Dave Burt, the
founding director of health promotion organisation Sport and
Life Training. Almost 130 attendees later let their hair down
with an â&#x20AC;&#x153;iconic Aussieâ&#x20AC;? dress up Christmas party.
Steve Irwin, Dame Edna Everidge and Ozzie Ostrich costumes
were spotted, and guests were treated to a live performance
by ARIA Hall of Famer Daryl Braithwaite.
The event was held in the rural Victorian town of Yuroke, at
the Aitken Hill conference centre.

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NTI thanks
broker partners
National Transport Insurance (NTI) held its
annual business partners function at the end
of last year.
The event took place at the prestigious Vue De
Monde restaurant of prominent chef Shannon
Bennett in Collins Street, Melbourne.
The function recognises and thanks NTIâ&#x20AC;&#x2122;s
broker partners, suppliers and staff for their
support of the business. About 130 guests
attended.

Insurers bat for
school fundraiser
The inaugural Battle of the Insurance Ashes was a smashing
success as the industry raised $40,000 for the Spring Farm
Public School in Sydney.
Teams from Allianz, Procare Group, QBE Insurance, Sura/AUB and
others including special guests from the Primary Club of Australia, a
cricketers’ charity, competed in the round robin tournament.
QBE finished top of the ladder, followed by the PCA
Barbarians and the Sura/AUB team.
“I would like to thank the major sponsors who entered teams,
our trophy sponsor CGU, as well as Suncorp, Insurance
Advisernet and 360 Underwriting Solutions,” club board
member Craig Patterson said.
“I’m always really impressed by the enthusiasm of people in the
insurance industry to get behind events like the Insurance Ashes.”
There are plans to stage another Ashes next year.
The school will use the funds to install soft surfaces and safe
playground equipment for its autistic pupils.

insuranceNEWS

February/March 2019

89

maglog >
T

Terry McMullan
Publisher

he death of Frank Hoffmann in
February at the age of 84 removed
from the industry’s ranks its most
knowledgeable expert, a raconteur of rare
wit and a fearless advocate for technical
and service excellence. He was a walking
encyclopedia of broking, the wider industry
and its laws and practices.

corporations, most buy on price.

Although he would state otherwise if he
could, it’s entirely coincidental that Frank
died just a few hours after the Hayne royal
commission’s report was publicly released.
He would have found much in the report to
agree with, because he believed passionately
in the power of professional relationships
and behaviour.

One of the biggest challenges for business
insurance is getting the government to stop
the ridiculous taxes they keep imposing. I
mean it’s all very well if a bill is $20,000 for
insurance, but why should $10,000 of that
go to a state government and the Federal
Government as well? It is quite ludicrous.
There is no other industry in Australia that is
so loaded down with so many taxes – perhaps
with the exception of the tobacco industry.

This writer interviewed Frank way back
in 2007. I remember it chiefly as a ramble
through some thorny issues that 12 years
later still command attention, with Frank,
swathed in cigarette smoke, charging ahead
through the industry’s undergrowth doing
exactly what he always did: identifying
professional failings, legislative lunacies
and some practices that had been lost along
the way. He was charming, entertaining and
erudite all at once.
Since his death there have been many
fine words spoken about Frank’s life and
long career, all richly deserved. We’ve
selected some of his comments from that
12-year-old interview and will let him do the
talking one last time. Rest in peace, Frank.
[Discussing what broking was like in 1952,
when he took over his late father’s brokerage
at the age of 18:] Loyalty was important,
both to clients – and they were very loyal in
return – and to insurers. You had to be very
technically competent. That is probably the
major aspect which today, regrettably, is not
necessarily the case.
There are some extraordinarily good
technicians in the market today, of course,
but generally speaking we are more
interested in performance. Most broker
education [in 2007] lasts two or three years.
It has become more centred on compliance,
and the real concise, intelligent technical
aspects have been nearly forgotten by many.
The biggest issue for brokers now is one
of their own making, regrettably. Today,
whether one likes it or not, whether it’s
SMEs, middle-sized companies or very large

90

insuranceNEWS

February/March 2019

There is an enormous push for
underwriters – and many brokers are falling
into the same trap – of saying one size fits
all. So for your SME you’ve got these quite
wide, very nice wordings. But they’re not
necessarily what fits the need of a particular
client.

Professionalism
is
[achieved
by]
continuing education, and this is one of the
things that I think a lot of brokers and the
directors of broking companies fail in. They
really believe that because they’ve worked

in broking for 20 years they know it all.
I don’t often see senior brokers, let alone
directors of broking houses at insurance
law association-type sessions on things of
considerable importance to our industry.
I’ve been in this business since 1952
and I don’t think a day has gone by that I
don’t learn something about insurance that
I didn’t know before, or something that I
thought I knew [which] has changed.
For anyone that likes lunching and likes
speaking and likes people, broking is an
ideal occupation. To be a good broker takes
brains – it really does – and people skills.
Insurance has been rather steeped in
my family through my mother’s side. I’m
the fifth generation in insurance and my
two sons are the sixth generation, which is
probably unique in the world.
My great-great-great grandfather was
one of the 10 founders of the Generali of
Trieste. Unfortunately, some idiot in the
family must have got rid of his shares. 0

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